Rising mortgage rates could affect 7.5 million households in the UK

Mortgage interest rates in the UK are expected to rise rapidly, costing an additional £15.8 billion per year by 2026, affecting 7.5 million households. According to analysis by the British think tank Resolution Foundation, the Bank of England’s (BoE) rate hike cycle has been strengthened by higher-than-expected inflation in April and continued wage growth. With policy rates currently at 4.50% expected to reach 6% by mid-2024, interest rates for mortgages are also rising, affecting deals in the market. The average two-year fixed mortgage rate is expected to rise to 6.25% by the end of this year and will not fall to 4.50% until the end of 2027. These high rates are expected to deepen the country’s existing mortgage crisis and add an additional £15.8 billion to total annual mortgage repayments by 2026. Annual mortgage repayments per household are expected to rise by £2,900 next year, with 7.5 million households affected by higher rates. Simon Pittaway, Senior Economist at the Resolution Foundation, said in his assessment of the analysis that market expectations that interest rates will rise further and remain high for longer, and that deals being withdrawn from the market and replaced with new higher-rate deals, had a major impact on the market. He said: “The mortgage crisis is currently on track to increase mortgage repayments by £15.8 billion and remortgage costs could rise by an average of £2,900 per household next year.” However, Pittaway noted that the increases may not be as bad as expected, adding: “However, around 60% of the £15.8 billion increase has still not been passed on to households. The pass-through of this increase, the increased repayments, will deal a further blow to the already deteriorating living standards of millions of households ahead of the general election.”