Mortgage costs will rise by £19bn as millions of fixed-rate mortgages expire. Borrowers are also forced to renegotiate home loans following the most severe round of interest rate hikes in decades.
Goldman Sachs economists say that despite the recent price wars between lenders, many UK homeowners will still see a significant increase in their repayments when compared to the previous deals.
According to Resolution Foundation, critics of Rishi Sunak have described this as a Tory timebomb in terms of mortgages. Up to 1.5m families are expected to be at the end of their cheaper deals by 2024, with an annual increase of around £1,800 for a typical family.
Borrowers are taking a variety of measures in order to deal with rising costs. They can rent out rooms, take early pensions, or even delay having children.
The Liberal Democrats have warned that 2024 will be “the year of the squeezed-middle” as the government is under pressure ahead of a general elections expected to take place in the second half.
Sarah Olney said that after publishing research indicating the average household will face a combined hit of over £4,700 due to higher mortgages and taxes, and increased energy bills, she added: “People are sick and tired about paying their bills and have to make huge cuts just to get through.”
On Saturday, ministers will try to claim that the government is easing household burdens by hastily passing a £10bn reduction in national insurance. The reduction in national insurance will not be enough to compensate for a six-year freeze of income tax thresholds. Tax as a percentage of the economy is expected to reach its highest level since World War II.
The Bank of England is widely expected to reduce interest rates from their current level of 5.25 percent to less than 4% at the end of this year.
Bidding War among Lenders To Improve Their Mortgage Offers. HSBC and Halifax have updated their fixed rate deals. The average rate for a fixed two-year home loan fell to its lowest level in nearly seven months this week.
Moneyfacts is a financial information service. On Thursday, Moneyfacts reported that the average rate for a fixed-term deal of two years had dropped from 5.92% down to 5.87% within a single day.
The cost of borrowing is still more than twice what it was two years ago. This puts additional pressure on families who are already struggling to pay their energy bills, and taxes continue to rise.
Alice Haine is a personal finance expert at Bestinvest. She said, “The mortgage rate cut news may have sparked the market, but it won’t ease the pain of the roughly 1.6 millions existing borrowers whose cheap fixed-rate agreements expire this year.
The only consolation is that it could have been worse.
Around 55% of UK Mortgages have moved to a higher rate of interest since borrowing costs began to rise after a record-low of 0.1% in Dec 2021. Another 5m mortgages are expected to be repriced by 2026 .
Torsten Bell is the chief executive at the Resolution Foundation. He said, “Remember this when you see news articles saying that homeowners will benefit from a drop in mortgage rates” – they are referring to the fact that mortgage payments for people won’t increase as much as they otherwise would have.
I’d suggest that they will not feel as if they are “benefiting” from their mortgage bill increasing by hundreds of pounds per month.
Goldman Sachs predicted that the Bank would begin reducing its base rate as early as may, based on forecasts that the maximum impact for households will be by summer. Goldman Sachs said that sticking to higher rates could add £30bn in mortgage repayments by next year. However, if the Bank follows through on its expectations, a figure of £19bn is more likely.
Even as recently as last week, the Bank’s senior policymakers were rebuffing financial market expectations. Andrew Bailey, Bank governor, stated that it was “really early” to speculate about rate reductions after the Bank left borrowing costs on hold.
As the Conservatives fight to overcome a Labour lead, the government is likely to seize on the prospect of a price war to soften the cost of remortgaging.
The Bank released figures on Thursday that showed the number new home loan applications rose in November for the second consecutive month to 50,100. This is up from 47.900 in October.
Treasury spokesperson stated that the UK economy had “turned a corner” following a halving of inflation. We are also providing households with £3,700 in support between 2022-2025. Our mortgage charter makes it easier to manage monthly payments and provides extra protection against repossessions.