Families getting an extra £2,900 a year on their mortgages as the impact of interest rate hikes deepens
Homeowners re-mortgaging next year will face an average £2,900 increase in annual repayments as the impact of interest rate hikes intensifies.
Figures from the Resolution Foundation show that the impact of the walks — already a record toll on homes — has yet to be worked through into next year and into 2026.
The think tank used data from the Office for National Statistics on mortgages across the country to calculate the average increase in households.
About 7.5 million households are expected to be affected by the continued rate increases.
The Bank of England has raised interest rates sharply since December 2021, when it was 0.1 percent, to 4.5 percent today. They are expected to rise to 4.75 percent next week and possibly 6 percent in 2024 – with inflation proving difficult to contain.
Analysis published by the Institute for Fiscal Studies yesterday suggested that 2.1 million middle-income mortgage holders would have to plunder their savings to keep paying their mortgages (file image)
The Bank of England has been raising interest rates sharply since December 2021, when it stood at 0.1 percent (file image)
It represents a “advanced standard of living affecting millions of households ahead of the next general election,” the think tank said.
But for those with fixed-term contracts negotiated at lower rates, the crisis is yet to come — and many homeowners will struggle to afford it.
Analysis released yesterday by the Institute of Fiscal Studies suggested that 2.1 million middle-income mortgage holders would have to plunder their savings or ask for help to cover the extra costs.
Interest rate expectations have risen significantly since last month, when they were expected to fall below 5 percent.
That would mean borrowers would have to re-mortgage next year, adding £2,000 to their annual repayments, a figure that has now risen to £2,900 more compared to before rates started to rise, the Resolution Foundation said.
While £2,900 will be the typical additional repayment bill, it will be higher for many.
For example, a borrower who took out a loan of £300,000 for five years in 2019 will typically pay £3,900 more per year if they re-mortgage next year on the same terms.
As interest rates continue to rise, lenders have been desperately reviewing deals. This week, Nationwide and NatWest introduced further increases to their mortgage products. HSBC and Santander have temporarily withdrawn some deals from sale.
Across the market, the average two-year deal stands at 5.98 percent, compared to 5.32 percent a month ago. Five-year deals are also up, from 5.03 percent to 5.62 percent.
The Resolution Foundation said two-year deals now appear to be moving to 6.25 percent later this year and not falling back to 4.5 percent until the end of 2027.
Wage data released this week – which showed wage growth at historic highs – added to the market turbulence.
Simon Pittaway, a senior economist at the think tank, said: “Market expectations that interest rates will rise even higher and stay high for longer are having a major effect on the mortgage market, with deals being closed and replaced by new mortgages with higher interest rates. ‘