…By Henry George for TDPel Media.
According to the Resolution Foundation, a think tank, annual mortgage repayments for the average household remortgaging are projected to rise by £2,900 next year.
The UK is experiencing a “mortgage crunch,” with total annual mortgage repayments expected to increase by £15.8 billion by 2026.
Stickier-than-expected inflation has raised the possibility of a longer cycle of interest rate hikes by the Bank of England, with rates predicted to peak at nearly six percent in mid-2024.
These higher expectations are already influencing mortgage rates, causing deals to be withdrawn and replaced with higher-rate options.
Escalating Mortgage Crunch:
Data from Moneyfactscompare.co.uk indicates that the average two-year fixed-rate homeowner mortgage is approaching the six percent mark, standing at 5.98 percent.
The Resolution Foundation predicts that the average two-year fixed-rate mortgage will not fall below 4.5 percent until the end of 2027.
This exacerbates the ongoing mortgage crunch, leading to a substantial increase in annual repayments.
By 2026, annual mortgage payments are expected to be £15.8 billion higher compared to before the rate-tightening cycle began in December 2021.
Living Standards Impact:
The majority of the projected increase in annual mortgage payments is yet to affect households, as borrowers transition from existing fixed-rate deals to new ones until 2026.
This will have a significant impact on living standards for millions of households leading up to the next general election.
The foundation predicts that this year’s rate increases will cause the cost of a typical mortgage to rise by three percent of typical household income, surpassing the 2.4 percent increase witnessed in 1989.
Limited Scope of Impact:
Although the mortgage crunch is causing concerns, the foundation highlights that it is less widespread than previous shocks.
In 1989, almost 40 percent of households with a mortgage were affected by rising costs.
However, the share of households with a mortgage fell below 30 percent by last year due to more older people owning properties outright and fewer young people entering homeownership.
Around 7.5 million households with a mortgage are expected to experience repayment increases by 2026.
Government Response and Market Uncertainty:
The current market expectations of higher and longer-lasting interest rates have led to the withdrawal of mortgage deals and their replacement with higher-rate options.
The Treasury emphasizes the importance of tailored support from lenders to borrowers struggling with mortgage payments and highlights the Support for Mortgage Interest scheme.
The impact of global inflation on household incomes is also acknowledged, with the government aiming to halve the inflation rate.
However, the Resolution Foundation warns that if market expectations persist, ongoing rising repayments will continue to negatively affect living standards for millions of households leading up to the general election.