Mortgages
Average household remortgage to rise by nearly £3,000 next year
As the Bank of England looks set to raise interest rates once more with inflation continuing to prove stubborn, a charity has found that annual repayments for those re-mortgaging next year are set to rise by £2,900 on average – up from £2,000 this year.
It is almost certain that the Bank of England will raise interest rates once again on Thursday, with some economists predicting that the base rate could go as high as 5.75% by the end of the year.
Given the inevitable rises and sticky inflation, new research from the Resolution Foundation has found that total annual mortgage repayments are now on course to rise by £15.8 billion by 2026, and by £2,900 for the average household re-mortgaging next year.
No relief from the mortgage misery
The higher expectations for the base rate are swiftly moving through into mortgage rates, with hundreds of deals being withdrawn from the market and replaced by new higher rate deals. The average two-year fixed-rate mortgage is now expected to hit 6.25% later this year, and to not fall back below 4.5% until the end of 2027.
This would significantly increase the scale of the mortgage crunch currently unfolding, says the Foundation.
Annual repayments are now on track to be £15.8 billion a year higher by 2026 – up from a projected £12 billion increase at the time of the most recent Monetary Policy Report in early May.
Indeed, this year’s rate rises are set to increase the cost of a typical mortgage by 3% of typical household income – the highest figure since the 2.4% increase in 1989.
Overall, the charity estimates around 7.5 million mortgagor households in Britain are expected to see their repayments rise by 2026.
Simon Pittaway, senior economist at the Resolution Foundation, said: “Market expectations that interest rates are going to rise even higher, and stay higher for longer, are having a major effect on the mortgage market, with deals being pulled and replaced with new higher-rate mortgages.
“This means the mortgage crunch is now on track to increase mortgage bills by £15.8 billion, with those re-mortgaging next year set to see their costs rise by £2,900 on average.
“Of course, market expectations can be wrong, and rate rises may not turn out to be as bad as feared. But with three-fifths of Britain’s £15.8bn mortgage hike still to be passed on to households, rising repayments will deal an ongoing living standards blow to millions of households in the run-in to the General Election.”
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