Two-thirds of the eventual £12bn rise in UK mortgage costs from rising interest rates has yet to be passed on to borrowers, a think tank has warned, leaving them facing painful refinancing over the coming months.
The Bank of England this week raised its main interest rate by a quarter of a percentage point to 4.5 per cent, the 12th consecutive rise since December 2021. The increase will bill people higher on floating mortgage rates and increase remortgage fears among those. You are nearing the end of a fixed rate transaction.
In a report published Saturday, Resolution said about half of the 7.5 million mortgaged households facing revised interest rates between the fourth quarter of 2021 and the end of 2026 had yet to see a change in the mortgage rate.
The think tank estimated a £12 billion increase in mortgage costs over the same period by taking market expectations of interest rate changes over the next four years, as well as payment increases since 2021, and calculating the impact on variable rate and fixed rate mortgages. . .
It found that £9 billion of the increase would be borne by the 40 per cent of the wealthiest households, who are more likely to live in expensive homes and have mortgages. But she also warned that lower-income families and first-time buyers will feel more pressure on their living standards, because mortgage costs are much higher as a proportion of their income.
Simon Pettaway, chief economist at Resolution, said: “People moving to new fixed-rate deals over the next year can expect annual mortgage costs to rise by £2,300 – with young families and lower-middle-income families taking on mortgages. Real estate is facing the biggest impact of living standards.
The Bank of England has estimated that approximately 1.3 million households will need repair between April and December 2023.
“For the average mortgage within that group, monthly interest payments would increase by about £200 a month if the mortgage price rose by 300 basis points – the increase implied by quoted mortgage rates,” the central bank said in its latest publication. monetary policy report.
Realtors said borrowers who value the certainty of knowing their future monthly payments may opt for a two-year fix or a cheaper five-year deal. But consumers who believe interest rates will fall within the next couple of years may reject the fix in favor of a tracker mortgage, which is linked to the Bank of England’s base rate, which allows them to fix later if better deals emerge.
Simon Gammon, managing partner at brokerage Knight Frank Finance, said it was a “very personal decision” because it came with “the risk that your monthly payments will go up if the Bank of England chooses to raise interest rates further”.
For 8 per cent of borrowers on tracker mortgages, Thursday’s rate hike would mean an increase of £24 in average monthly payments, but a monthly jump of £417 when increases from 2021 are included, according to data from British Financial Industry, based on average mortgage sizes.
Meanwhile, 9 per cent of standard variable rate borrowers – the most expensive rate lenders offer – would see their average monthly payments rise by £15, but a monthly increase of £267 with previous rate increases included.
Mortgage brokers downplayed the potential for borrowers to be forced into an SVR, pointing to the rise in product transfer mortgages, where a lender offers a new deal with a customer’s repair expiration date without having to re-evaluate affordability.
Ray Bolger, an analyst with broker John Charcol, said that even if people’s circumstances change “they can still get product transfers in almost every case . . . so if people are using SVR, it’s usually through choice or maybe through insufficiency.” self.”