Annual mortgage bills to rise by £5,100 for 5mn UK households, study shows

More than 5mn households in Britain are set to see their annual mortgage payments increase by an average of £5,100 by the end of 2024, in the wake of high inflation and the “mini” Budget.

More than 1mn households with a variable-rate mortgage already face higher repayments after the chancellor’s fiscal statement last month.

However, the figure is set to rise to 1.7mn by the end of this year, as people on fixed-rate offers move on to new deals, according to research by the Resolution Foundation published on Saturday.

By the end of 2024, 5.1mn households — about one-fifth of the total — will be paying more for their mortgages compared with today.

Affected households will typically be paying £5,100 more a year by the end of 2024, which adds up to £26bn in additional mortgage payments, the think-tank found.

While a large part of the expected increase in mortgage payments is the result of the rise in the Bank of England policy rate, £1,200 is due to changes in interest rates expectations following the “mini” Budget, according to the study.

Lindsay Judge, research director at the Resolution Foundation and author of the report, said the rise in interest rates “will cause a fresh living standards crunch for mortgaged households across Britain”.

Affected households in London will see the biggest increase — with average payments set to rise by £8,000 over the same period, more than twice the level of the £3,400 increase experienced by mortgagors in Wales.

However, the impact in the capital will be more concentrated as only 19 per cent of households have a mortgage, by far the lowest of any region and well below the 29 per cent in the South East.

Although higher-income households will face the biggest increases in mortgage costs in cash terms on average, it is lower income families that face the largest rise as a share of income.

The think-tank estimated that the typical household with a mortgage will spend about 5 per cent more of their income on their housing costs by the end of 2024. However, the figure rises to 10 per cent for those on lower pay.

With inflation at its highest level for 40 years, the Bank of England has increased its policy rate from a historical low of 0.1 per cent last year to 2.25 per cent.

Meanwhile, markets are pricing in an increase of 75 or 100 basis points at the BoE’s next policy meeting in November, with the rate expected to rise to more than 5 per cent by early next year.

Policy interest rates expectations for next year have jumped up by about 2 percentage points in response to the unfunded tax cuts announced by the government on September 23.

Even after the government’s U-turn on its corporation tax cut on Friday, 2023 policy interest rates expectations remained above 5 per cent and well above those of mid-September.

The think-tank forecast that mortgage rates will rise to between 6 and 7 per cent for those on fixed rates, soaring to more than 8 per cent for those on floating rates.

The analysis showed that one in three Conservative voters have a mortgage. For Labour voters and those in “red wall” constituencies in the north and Midlands, won by the Tories in the last general election, the share rises to two in five.