Before the weekend, finance news outlets across the country broke the news that mortgages could cost and extra £5,100 per year for the average mortgage borrower by the end of 2024. A shocking claim, yes. But is it true?
Market analysis organisation Resolution Foundation released figures on Friday that claimed that by the end of 2024, 5 million families in the UK could see mortgage rates that might cost over £5,000 extra a year. According to ONS (Office of National Statistics) figures, there are 7.4 million households with mortgages in the UK, so Resolution Foundation are claiming that 67% of mortgages in the UK will see an increase of at least £5,100. That is a staggering figure, but let’s have a more in-depth look of the facts and the data.
Resolution’s Predictions On How Much Mortgages Could Cost
This figure given by Resolution is based on expectations of significant rate rises, as a result of the disastrous mini-budget announcement by the new former Chancellor of the Exchequer Kwas Kwarteng. The Bank of England raised interest rates from incredible lows of 0.1% to now over 2% and predictions currently are that this will rise to 5% by 2023. If rates keep on increasing, as Foundation seem to predict, this could cost mortgage borrowers a hefty bit of interest.
Foundation points out in their report, that 1.2 million mortgaged households are currently on variable rate deals and will see monthly mortgage costs increase significantly in line with the Bank of England’s base rate, this will already be seen and felt as variable mortgages rise in real time. People currently on fixed rate mortgage deals will only start to see an increase in the cost of their loans a couple of years down the line as people start to come off their fixed deals and secure higher interest rate products.
They go on to report that in total 1.7 million homes will see a mortgage payment increase by the end of 2022. By the end of 2024, 5.1 million mortgage owners will be spending more on their monthly mortgage payments as a result of increases in mortgage rates and the base rate. The average mortgage owner will see their annual mortgage payments rise by £3,500 between Q3 2022 and Q4 2024.
Lindsay Judge from Resolution Foundation comments on the new data saying:
“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. Between now and the next election, Britain is on track for a £26bn mortgage hike as over five million households see their annual mortgage payments rise by £5,100 on average. With almost half of all mortgagor households on course to see their family budgets fall by at least 5% from higher payments, the living standards pain from rising interest rates will be widespread.”
What Do The Mortgage Experts Think About Resolution’s Claims?
But of course, all of this is hypothetical because no one really knows exactly what the future holds. Yes, people can get a good idea based on data and trends, but this report definitely catastrophises and presents a worst-case scenario. Something that we are confident won’t be as back as Resolution claims. Resolution foundation suggest that interest rates will continue to rise and rise, however they have not considered that markets may calm by that time and rates could reduce. They have also assumed that the vast majority of borrowers will only be able to move on to the higher end of mortgage interest rates when this is not necessarily the case.
If you or anyone you know is worried about their mortgage payments, give our team a call today and one of our advisors will be able to go through everything with you and help you to find a solution.