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Market turmoil adds £5k extra to mortgage bills by 2024

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Five million households are set for average mortgage bill increases of £5,100 – a total of £26bn across the UK – by the end of 2024, research from a leading think tank reveals.

With interest rates estimated to reach 5% and above in 2023, the Interesting Times report from the Resolution Foundation paints a stark picture of what this will mean for the UK’s mortgage holders.

The research examines the impact these higher rates will have on the housing costs of the 7.4 million households who have a mortgage on their main home.

The Foundation notes that while 1.2 million households on variable rate deals will see their mortgage bills rise swiftly in line with the Bank of England base rate, the impact on the 85% of those on fixed rate deals will build over the coming years as they move to new deals.

Mini Budget adds an extra £1,200 to costs

In total, 1.7 million will see their mortgage payments rise later this year – including 500,000 households on new fixed rate deals – and a further 400,000 households will pay more in early 2023.

By the end of 2024, 5.1 million households – close to one-fifth of all households in Britain today – will be spending more as a result of increases in mortgage rates since Q3 2022.

According to the research, the average household, including those that are protected by their fixed rate mortgage, will see their annual mortgage payments rise by £3,500 between the third quarter of 2022 and the last three months of 2024.

For those 5.1 million households who will be affected between now and the end of 2024, the research finds that their average increase will be £5,100, of which £1,200 is a direct result of changes in interest rate expectations since former Chancellor Kwasi Kwarteng’s mini Budget.

London and lower income households hit hardest

Homeowners in the capital will see the biggest increase – with average payments set to rise by £8,000 over this period, more than twice the level of the £3,400 increase experienced by mortgagor households in Wales.

The research also shows that although higher income households will face the biggest increases in mortgage costs in cash terms on average, it is lower income families that face the biggest increase as a share of their income.

In early 2025, half of all mortgaged households – 3.8 million in total – will have seen higher mortgage costs absorb at least 5% more of their net household income due to higher mortgage costs, including around two million households who will have lost at least 10% of their household income.

Lindsay Judge, research director at the Resolution Foundation, said: “Households across Britain are currently living through an inflation-driven cost-of-living crisis as pay packets shrink and energy bills rise.

“The government has responded with policies such as the welcome Energy Price Guarantee. But the Bank of England is responding too by raising interest rates, which will cause a fresh living standards crunch for mortgaged households across Britain.

“With almost half of all mortgagor households on course to see their family budgets fall by at least 5% from higher payments, the living standards pain from rising interest rates will be widespread.”

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