According to a think tank, annual mortgage payments are set to rise by £2,900 for the average household remortgaging next year.
As the UK’s “mortgage crisis” worsens, total annual mortgage repayments could rise by £15.8billion by 2026, the Resolution Foundation has said.
Prolonged inflation has raised expectations that the Bank of England’s base rate hike cycle, which began in December 2021, will continue for longer than initially thought.
Rates are now expected to peak, mid-2024, at nearly 6%, the foundation said.
These higher expectations are reflected in mortgage rates, as transactions are taken off the market and replaced with higher rates.
Data published by Moneyfactscompare.co.uk indicated that the average two-year fixed rate mortgage was just below the 6% mark, at 5.98%.
The Resolution Foundation said the average two-year fixed rate mortgage is not expected to fall below 4.5% before the end of 2027.
This would dramatically increase the scale of the mortgage crisis now unfolding, he said.
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Ed Conway on what inflation means for the economy and mortgages
Annual repayments are now on track to rise by £15.8billion a year by 2026, compared to a forecast increase of £12billion at the time of the last monetary policy report in early May, it said. the foundation.
About three-fifths of this increase in annual mortgage payments has yet to be passed on to households, as borrowers abandon existing fixed-rate mortgage agreements to switch to new fixed rates, through 2026, the report adds.
This is expected to lower the standard of living for millions of households ahead of the next general election.
The foundation also projects that this year’s rate hikes will raise the cost of a typical mortgage by 3% of typical household income this year – even more than a 2.4% increase seen in 1989.
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The foundation, which focuses on improving the living standards of low-to-middle income people, said the best news for the government, however, is that the current mortgage crisis is less widespread than previous shocks.
Back in 1989nearly 40% of households owned a home with a mortgage, and were therefore exposed to rising costs.
Last year, the combination of more older homeowners and fewer younger homeowners caused the share of households with mortgages to drop below 30%.
Overall, about 7.5 million households with mortgages are expected to see their repayments increase by 2026, according to the report.
Simon Pittaway, senior economist at the Resolution Foundation, said: “Market expectations that interest rates will rise even further and stay higher for longer are having a major effect on the mortgage market, with deals being pulled and replaced by higher news.- mortgage rates.
“This means the mortgage crisis is now on track to increase mortgage bills by £15.8bn, and those who re-mortgage next year are expected to see their costs rise by an average of £2,900. “
A Treasury spokesman said: “We know this is a worrying time for mortgage holders, which is why the FCA (Financial Conduct Authority) is requiring lenders to offer personalized support to borrowers who are struggling. struggling to make their payments, and we continue to support mortgage holders through the Mortgage Interest Support program.”