Families preparing to remortgage in the coming year can expect a significant increase in their annual repayments, with an average rise of £2,900 due to the ongoing impact of interest rate increases. The Resolution Foundation analyzed mortgage data from the Office for National Statistics and estimated that around 7.5 million households will be affected by these rate hikes. The Bank of England has been steadily raising interest rates since December 2021, and they are expected to reach 4.75% next week, with a possible climb to 6% in 2024. This surge in rates has put a strain on homeowners, particularly those on fixed-term deals agreed at lower rates, who may struggle to afford the higher repayments.
The Institute for Fiscal Studies revealed that 2.1 million middle-income mortgage holders would need to dip into their savings or seek financial assistance to cope with the added expense. Interest rate expectations have risen significantly since last month, when it was anticipated that rates would peak at under 5%. With the current projections, borrowers looking to remortgage next year could see their annual repayments increase by £2,900 compared to pre-rate hike levels.
While the average extra repayment bill will be around £2,900, many borrowers may face even higher costs. For example, someone who took out a five-year fixed mortgage in 2019 for £300,000 would face an additional annual payment of £3,900 if they were to remortgage under the same terms next year. Lenders have been scrambling to adjust their deals as interest rates continue to rise, leading to further increases for mortgage products offered by Nationwide and NatWest. HSBC and Santander have temporarily withdrawn some deals from the market as well.
The average interest rate on a two-year deal is now 5.98%, up from 5.32% just one month ago, while five-year deals have risen from 5.03% to 5.62%. The Resolution Foundation predicts that two-year deals could reach 6.25% later this year and may not fall back to the current 4.5% level until the end of 2027. The recent wage figures, which show a historically high rate of pay increase, have added to the volatility in the mortgage market.
Simon Pittaway, a senior economist at the Resolution Foundation, stated that the market’s expectation of further interest rate hikes and a prolonged period of higher rates has had a significant impact on the mortgage market. Lenders are pulling existing deals and replacing them with higher-rate mortgages. As an affiliate website, This Is Money may earn a small commission from some of the links in this article, but the content is always written with editorial independence in mind.
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