Mortgage bills set to rise by £3,000 – warning

Homeowners face paying an extra £3,000 for their mortgage next year, new research suggests.

Analysis from the Resolution Foundation thintank suggests that signs that higher-than-expected inflation has raised market expectations for how high the Bank of England will raise interest rates.

The cost of borrowing is now expected to peak in mid-2024 at almost 6% – suggesting another five quarter-point rate hikes are on the way – the highest since the fallout from ‘Trussonomics’ last Autumn. 

This means 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, according to the Resolution Foundation. 

This would significantly increase the scale of the mortgage crunch currently unfolding, the foundation said.

This year’s rate rises set to increase the cost of a typical mortgage by 3% of typical household income this year – even bigger than 2% increase in 1989.

The only silver lining for the Government however, is that the current mortgage crunch is far less widespread than previous shocks. Back in 1989, almost 40 per cent of households owned a home with a mortgage, and were therefore exposed to rising costs.  

By last year, the combination of more older people owning outright, and fewer young people owning at all, meant that the share of households with a mortgage had fallen below 30%, the Foundation said.

Overall, around 7.5m 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.bn, 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 £15.7bn 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.”