On Monday 19 June, the average rate for a two-year fixed mortgage stood at 6.01%, stated financial information company Moneyfacts.
Findings from the Resolution Foundation, a think tank aiming to raise living standards for those on low and middle incomes, suggest this figure is set to rise to 6.25% by the end of 2023.
This means that, for 800,000 households set to remortgage next year, their annual payments are set to rise by £2,900 on average. Nearly 7.5 million households are set to see their repayments rise by 2026.
Mortgage rates are set to rise due to inflation exceeding expectations (8.7%) and high pay growth (7.5%), which have led the Bank of England to set a higher base (interest) rate in order to control inflation. However, the recent consistent interest rate hikes in response to soaring and persistent inflation have led to a sharp rise in mortgage rates.
Rising repayments will deal an ongoing living standards blow to millions of households
–Simon Pittaway, Senior Economist at the Resolution Foundation
The Bank of England’s Monetary Policy Committee voted to raise the base rate from 4.5% to 5% at its recent meeting. High inflation and a high base rate are expected to persist, leading to mortgage rates adapting and thus remaining elevated, affecting homeowners in the long run.
The Institute for Fiscal Studies warns:
“Those now paying higher rates in the mortgage market are experiencing what private renters have been experiencing for years now, with almost zero interest from politicians for addressing affordability crisis in private renting,” said Darren Baxter-Clow, a policy adviser at the Joseph Rowntree Foundation poverty charity.
“The debate needs to be broader in housing market. The rental side is where some of the real pressures will be.”
Prime Minister Rishi Sunak is yet to announce further support to households amidst increased mortgage bills, maintaining during Prime Minister’s Questions (PMQs) on Wednesday 21st June, that the “global macroeconomic picture” aligns with his priority of halving inflation.
He argues that “[anxiety about mortgage rates] is why the first priority I set out at the beginning of the year was to halve inflation because that is the best and most important way that we can keep costs and interest rates down for people”.
Throughout PMQs, Labour Party Leader Keir Starmer argued that Sunak has failed to act to relieve pressure on homeowners who now face a “Tory mortgage penalty”.
Simon Pittaway, Senior Economist at the Resolution Foundation claims that “with three-fifths of Britain’s £15.7 billion mortgage hike still to be passed on to households, rising repayments will deal an ongoing living standards blow to millions of households”.