March 30, 2023

More than 5 million households in Britain will see their annual mortgage payments rise by an average of £5,100 by the end of 2024, in the wake of high inflation and the ‘mini’ budget.

More than 1 million households with variable-rate mortgages are already experiencing higher repayments following the Chancellor’s tax statement last month.

However, according to research from the Resolution Foundation published on Saturday, this figure is set to rise to €1.7 million by the end of this year as people with fixed-rate offers switch to new deals.

By the end of 2024, 5.1 million households – about a fifth of the total – will pay more for their mortgage than they do now.

Affected households will typically pay £5,100 more per year by the end of 2024, representing £26 billion in additional mortgage payments, the think tank found.

While much of the projected increase in mortgage payments is due to the rise in the Bank of England’s key interest rate, the study says £1,200 is due to changes in interest expectations after the “mini” budget.

Lindsay Judge, director of research at the Resolution Foundation and author of the report, said the rise in interest rates “will cause another crisis in the living standards of mortgage-backed households across Britain”.

Affected households in London will see the biggest increase – with average payments rising by £8,000 over the same period, more than twice the level of the £3,400 increase experienced by mortgage lenders in Wales.

However, the impact in the capital will be more concentrated as only 19 percent of households have a mortgage, by far the lowest of all regions and well below 29 percent in the Southeast.

See also  Children really do learn more quickly than adults, study confirms 

While higher-income households will see the largest increase in cash mortgage payments on average, lower-income households will see the largest increase as a share of income.

The think tank estimated that the average household with a mortgage will spend about 5 percent more of their income on housing costs by the end of 2024. For lower wages, however, this figure rises to 10 percent.

With inflation at its highest level in 40 years, the Bank of England has raised its key rate from an all-time low of 0.1 percent last year to 2.25 percent.

Meanwhile, markets are pricing in a 75 or 100 basis point hike at the BoE’s next policy meeting in November, with interest rates expected to rise to more than 5 percent early next year.

Line chart of bank and average mortgage rates, UK shows mortgage payments rising ahead of expected rate hikes

Key rate expectations for next year have risen about 2 percentage points in response to the unfunded tax cuts announced by the government on September 23.

Even after the government’s turnaround on Friday’s corporate tax cut, key rate expectations for 2023 remained above 5 percent and well above those of mid-September.

The think tank predicts that mortgage rates will rise to between 6 and 7 percent for those with a fixed interest rate, and to more than 8 percent for those with variable interest rates.

The analysis found that one in three conservative voters has a mortgage. For Labor voters and those in “red wall” constituencies in the North and Midlands, won by the Tories in the last general election, the proportion rises to two in five.