Two-thirds of the £12bn eventual rise in UK mortgage costs due to rising interest rates has yet to be passed on to borrowers who will face painful refinancing over the coming months, think tank warns bottom.
The Bank of England lifted its policy rate this week. main interest rate It rose 4.5 percentage points, marking the 12th straight rise since December 2021. The rise will lead to higher billings for those with variable mortgage rates and heighten re-mortgage anxiety among those nearing the end of their fixed-rate contracts.
In a report released on Saturday, Resolution Foundation Of the 7.5 million mortgage households facing rate changes from the fourth quarter of 2021 to the end of 2026, about half said they had not yet experienced a change in mortgage rates.
The think tank takes into account market expectations of interest rate fluctuations over the next four years and increases in repayments from 2021 onwards, and calculates the impact of variable and fixed rate mortgages on home loan costs over the same period. estimated an increase of £12 billion. .
The report said £9bn of the increase would go to the wealthiest 40% of households, who are most likely to live in luxury homes and have mortgages. But he also warned that low-income families and first-time homebuyers will feel a lot of pressure on their living standards, as mortgage costs are a much higher percentage of their income.
“People moving to new fixed-rate contracts next year will see annual mortgage costs rise to a staggering 2,300 among younger and lower-income households,” said Simon Pitaway, senior economist at the Resolution Foundation. We expect to see an increase in pounds,” he said. Middle-income households with mortgages face the biggest hit to living standards. ”
The Bank of England estimates that about 1.3 million homes will need refurbishment between April and December 2023.
“For the average mortgage borrower in that group, a 300 basis point increase in mortgage rates would increase monthly interest payments by about £200. This increase is implied by mortgage rate estimates. Yes,” the central bank said in its latest report. monetary policy report.
Borrowers who value the certainty of knowing their future monthly payments may opt for a two-year fixed term or a cheaper five-year contract, brokers said. But consumers who believe interest rates will fall within the next two years could push back against the revision in favor of tracker mortgages that track the central bank’s base rate, which can be revised later if better conditions emerge. have a nature.
Simon Gammon, managing partner at brokerage Knight Frank Finance, said this was “extremely risky” because it “carries the risk of higher monthly payments if the Bank of England chooses to raise interest rates further.” It’s a personal decision,” he said.
For 8% of tracker mortgage borrowers, Thursday’s interest rate hike means an average £24 increase in monthly payments, according to data from trade group UK Finance, but including the increase from 2021 An increase of 417 pounds. Average mortgage size.
On the other hand, 9% of borrowers using the highest standard floating rate offered by their lenders see their monthly payments increase by an average of £15, compared to an increase of £267 per month if previous rate hikes are included.
Mortgage brokers are downplaying the potential for borrowers to be forced into SVR, encouraging an increase in commodity transfer mortgages where lenders offer new contracts without reassessing affordability once a customer’s mortgage expires. It pointed out.
Ray Bolger, an analyst at brokerage John Chercol, said even if people’s circumstances change, “in almost every case, you can still get a transfer of goods.” . . So if people are using his SVR, it’s usually by choice or perhaps by inertia. ”
