More than five million households are set to see yearly mortgage bills rise by £5,100 on average by the end of 2024, experts have warned.
The Resolution Foundation, an independent think tank, said £1,200 of that rise will be higher interest caused by last month’s disastrous mini-budget, announced on 23 September. Mortgage costs have been rocketing since the mini-budget and the average interest rate on a new two-year fixed term mortgage is now 6.3%. That is up from 4.75% at the time ex-Chancellor Kwasi Kwarteng presented his fiscal plans.
What happened after the mini-Budget announcement?
More than 1,000 mortgage deals were pulled from the market following the speech by Kwarteng. Many have now returned at a much higher rate. This was due to markets reacting to fears that interest rates could hit 6% next year - although this has now been downgraded to around 5.25% following two major U-turns.
The foundation said that 1.2 million homes on variable rate mortgages will see costs rise quickly. While 85% of homes on fixed rate deals will see rate rises as their home loans run out. In total 1.7 million households will see their mortgage payments rise later this year - that includes 500,000 households on new fixed rate deals. A further 400,000 households will pay more in early 2023.
How much will housing costs rise?
By the end of 2024, 5.1 million mortgage households will be spending more on their housing costs. The average mortgaged household will see their annual payments rise by £3,500 between Q3 2022 and Q4 2024. The typical increase in mortgage bills will be £5,100 a year by the end of 2024 - but this varies depending on where you live.
Households in London will see the biggest increase. Average payments are set to rise by £8,000 over this period - more than twice the level of the £3,400 increase experienced by homes in Wales. The impact in London will be concentrated however, as fewer than one-in-five households (19%) in the capital have a mortgage.
In total, mortgage payments are set to rise by £26billion a year by the end of 2024. The research shows that lower income families with mortgages face the biggest increase as a share of their income. In early 2025, half of all households with a mortgage will pay at least 5% more of their income on home loan bills. Two million homes will be paying an extra 10% of their income on these costs.
What has been said?
Resolution Foundation research director Lindsay Judge said: "Households across Britain are currently living through an inflation-driven cost-of-living crisis as pay packets shrink and energy bills rise.
“The Government has responded with policies such as the welcome Energy Price Guarantee. But the Bank of England is responding too by raising interest rates, which will benefit savers but cause a fresh living standards crunch for mortgaged households across Britain."