June 17th 2023.
The Resolution Foundation recently warned that annual mortgage repayments are set to rise by £2,900 for the average household next year. This is due to the Bank of England's base rate-rising cycle, which began in December 2021, and is expected to peak in mid-2024 at nearly 6%.
Data from Moneyfacts compare.co.uk revealed that the average two-year fixed-rate homeowner mortgage was teetering just below the 6% mark, at 5.98%. The Resolution Foundation stated that the average two-year fixed-rate mortgage will not fall below 4.5% until the end of 2027.
This would lead to a total annual mortgage repayment rise of £15.8 billion by 2026. This could have a huge impact on households, with the foundation predicting that the rate rises this year will increase the cost of a typical mortgage by 3% of typical household income.
The Resolution Foundation also noted that the current mortgage crunch is less widespread than previous shocks. Back in 1989, 40% of households owned a home with a mortgage, while last year that figure had fallen to below 30%. This means that 7.5 million households with a mortgage are expected to see their repayments rise by 2026.
Simon Pittaway, senior economist at the Resolution Foundation, commented: "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 remortgaging next year set to see their costs rise by £2,900 on average."
In response, a Treasury spokesperson said: "We know this is a concerning time for mortgage holders, which is why the FCA requires lenders to offer tailored support to borrowers struggling to make their payments, and we continue to support mortgage holders through the Support for Mortgage Interest scheme. Behind this though is global inflation, continuing to eat away at incomes around the world, which is why the single biggest thing we can do to help families is to halve the rate this year. We are also supportive of the Bank of England in their independent decisions on interest rates, and continue to provide around £3,300 per household this year and next to help with rising costs."
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