The Mortgage Disaster For Many People Is Unfolding As Increases Hit Owners And Renters

13th July 2023

The Bank of England has issued a warning that one million households could face a significant rise in mortgage payments, resulting in a monthly increase of £500 by 2026. Homeowners who are refinancing during the latter half of this year can expect their monthly interest payments to rise by approximately £220.

The Bank further stated that the average homeowner, when renewing their fixed-rate deals, will experience an increase of around £220 in their monthly mortgage payments. Additionally, half a million households could face even larger payment hikes of £750 or more.

The Resolution Foundation think tank has expressed concern over the potential "huge income falls" that would accompany such increases. They predict that households refinancing next year would, on average, have to pay an additional £3,000 per year.

The Institute for Fiscal Studies (IFS) has also weighed in, stating that higher mortgage payments would exacerbate the financial strain for individuals already grappling with rising food and energy costs.

These warnings emerge just after mortgage rates surpassed the levels seen following last year's tumultuous mini-Budget. Current figures indicate that the average two-year fixed-rate deals have reached 6.66 per cent, the highest since the financial crisis. The rates climbed even higher to 6.7 per cent on Wednesday.

Santander and Nationwide Building Society, two prominent UK lenders, reported that customers switching to new mortgage deals were facing an average monthly payment increase of £200. The Bank's analysis revealed that around 4.5 million people with fixed-rate mortgages have already experienced a rise in their monthly repayments since late 2021. An additional four million households with two-year or five-year fixed deals are likely to witness payment increases by the end of 2026.

Buy-to-let landlords are also grappling with higher mortgage rates, leading some to sell their properties or pass on the increased costs to renters, as noted by the Bank.

James Smith, the research director at the Resolution Foundation, emphasized that the current "mortgage crunch" differs from previous crises since a smaller proportion of people own homes with mortgages. However, those affected are expected to face substantial declines in income, with individuals refinancing next year potentially encountering an average increase of £3,000 in interest payments.

Thomas Wernham, an economist at the IFS, added that those who need to remortgage may experience a decline in disposable income of over 8 per cent, equivalent to almost £3,200 annually, due to the higher payments. Individuals in their thirties, who generally hold larger mortgages, are projected to be the most impacted by these changes.