UK households at the end of fixed-rate mortgage deals next year face an average £2,900 increase in annual payments, putting Rishi Sunak under pressure to defuse a time bomb in an election year.
The estimated increase in payments by Resolutions think tank reflects concern that the UK has a worse inflation problem than other countries and that the Bank of England will need to raise interest rates to close to 6 per cent next year, when a general election is held. is expected.
Liberal Democrat leader Sir Ed Davey on Friday called for a £3 billion “mortgage protection fund” for people whose homes will be repossessed, in a sign of growing political tension over the issue.
But the prime minister and his adviser Jeremy Hunt argue such a move would be dangerous because it would fuel inflation.
On Wednesday, Sunak said the government’s “number one economic priority” was to curb high inflation.
The political spat comes after another week of mortgage rate increases by lenders, including NatWest, Nationwide and HSBC, in moves that followed last month’s poor official inflation data that prompted financial markets to ramp up expectations of a rate hike by the Bank of England.
“It’s dangerous,” said a senior government figure. That is why we are fully focused on cutting inflation in half by the end of the year. Inflation is the disease of the economy.”
The Bank of England is likely to raise interest rates from 4.5 percent to 4.75 percent when the Monetary Policy Committee meets on Thursday, although some economists believe an even larger increase is possible if there is another bad set of inflation numbers on Wednesday.
Bank of England Governor Andrew Bailey said on Tuesday that inflation was “taking much longer” than he had hoped to come down, and a survey of the central bank found that public confidence in its ability to control inflation had fallen to its lowest level since records began.
In a report, the Resolution Foundation estimated that 1.6 million fixed-rate mortgages will expire in 2024.
Households that remortgaged in 2024 faced the largest increase in annual payments, said Simon Pettaway, author of the think tank report, because it was likely a peak year for interest rates and most borrowers previously enjoyed cheap deals.
Although the average annual increase in payments next year is estimated to be around £2,900, younger households with more debt could see much larger hikes.
Resolution has estimated that the average two-year fixed mortgage rate will rise to 6.25 percent this year, and not fall below 4.5 percent until the end of 2027.
“Recent moves in market interest rates suggest that the poor outlook for UK mortgage lenders has worsened,” said Pitaway.
“If interest rates move in line with expectations, British families are poised for a protracted and historic mortgage crisis.”
Once almost all mortgage borrowers have moved on to more expensive mortgage products, Resolution has estimated that they will collectively pay 15.8 billion pounds more each year to service their debt than in 2021, when the Bank of England began raising interest rates in response to inflation.
Labor claimed that the homeowners were paying the “Tory Mortgage Premium”. “The mortgage statement will be the most decisive moving piece to come through the electorate’s mailbox between now and the election,” said Liam Byrne, the former Labor Chancellor of the Exchequer.