Average annual mortgage payments are expected to rise by £2,900 over the next year | British News

Total annual mortgage payments could rise by £15.8 billion by 2026 (Image: Getty)

Total annual mortgage payments could rise by £15.8 billion by 2026 (Image: Getty)

Annual mortgage payments for the average household will increase by £2,900 over the next year, according to a think tank.

As the UK ‘mortgage crisis’ deepens, total annual mortgage repayments could increase by £15.8 billion by 2026, according to the Resolution Foundation.

Inflation has raised expectations that the Bank of England’s interest rate hike cycle, which began in December 2021, will continue for longer.

The foundation said rates are now expected to peak at nearly 6% in mid-2024.

These higher expectations are quickly affecting mortgage rates, with offers being withdrawn from the market and replaced by new ones with higher interest rates.

Data released on Friday showed the average two-year homeowner’s fixed-rate mortgage was hovering at 5.98%, just below 6%.

The Resolution Foundation said the average two-year fixed-rate mortgage is not expected to fall below 4.5% by the end of 2027.

This would significantly increase the magnitude of the current mortgage crisis, it said.

Calculate house rates, fees and mortgage rates for renting, buying and selling houses. Home loans for employees and companies. Low interest and additional loan. Interest rate risk management.; Shutterstock ID 1536488660; Confirmation of the order: -; Work: -; Client: -; other: -

Rates are now expected to peak at nearly 6% in mid-2024 (Image: Shutterstock/TimeShops)

Annual repayments are expected to be £15.8 billion a year higher up to 2026 than before the bank’s rate-hike cycle, which begins in December 2021, up from a forecast increase of £12 billion at the time of the last monetary policy report in early May, the foundation said with.

About three-fifths of this increase in annual mortgage payments has yet to be passed on to households as borrowers transition from existing fixed-rate mortgage contracts to new fixed-rate mortgages through 2026, the report said.

This is expected to result in a sliding slump in the living standards of millions of households ahead of the next general election.

The foundation also predicts that this year’s rate hikes will increase the cost of a typical mortgage by 3% of typical household income this year — even more than the 2.4% increase in 1989.

File photo dated 12/09/18 of show homes on a stack of coins and notes, as homeowners in the UK face even more mortgage woes, many of whom are yet to feel the full impact of rising interest rates, a think tank says. PA photo. Issue date: Saturday May 13, 2023 The trend for homeowners to take out longer-term fixed-rate mortgages has delayed the impact on some households as two-thirds of an eventual €12 billion increase in annual mortgage costs has yet to be passed on, the Resolution Foundation said. See PA story MONEY Mortgage. Photo credit should read: Joe Giddens/PA Wire

The Resolution Foundation said it expects the average two-year fixed-rate mortgage to not fall below 4.5% by the end of 2022 (Image: PA)

The foundation, which focuses on improving living standards for people with low- to middle-income incomes, said the better news for the government is that the current mortgage crisis is less widespread than previous shocks.

In 1989, almost 40% of households owned a home with a mortgage and were therefore exposed to rising costs.

Last year, the proportion of households with a mortgage had fallen below 30% due to the combination of more older people owning a home and fewer young people owning a home at all.

Overall, around 7.5 million households with a mortgage are expected to see their repayments increase through 2026, the report says.

Simon Pittaway, senior economist at the Resolution Foundation, said: “Market expectations that interest rates will continue to rise and stay high for longer are having a significant impact on the mortgage market as deals are withdrawn and replaced with new, higher-interest-rate mortgages.”

“That means the mortgage crisis is now causing mortgage bills to rise by £15.8bn, with the cost of those restructuring over the next year expected to rise by an average of £2,900.”

“Of course, market expectations may be wrong and rate hikes may not be as bad as feared.”

“But with three-fifths of the UK’s £15.8 billion mortgage increase still to be passed on to households, rising repayments ahead of the general election will deal a lasting blow to the living standards of millions of households.”

A Treasury spokesman said: “We know this is a worrying time for mortgage holders, which is why the FCA (Financial Conduct Authority) is requiring lenders to offer tailored support to borrowers who are struggling to make their payments and we support.” Mortgage holders continue through the.” Support for the Mortgage Rate Program.

“But behind this is global inflation, which continues to eat up incomes around the world, which is why the biggest thing we can do to help families is to halve the rate this year.”

“We also support the Bank of England in their independent interest rate decisions and will continue to provide around £3,300 per household this year and next to help with rising costs.”

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Justin Scaccy

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