Up to 1.5 million UK households are expected to face a sharp increase in mortgage costs this year as fixed-rate deals expire, with economists warning of a £19bn rise in annual repayments. According to the Resolution Foundation, the typical family will see an increase of about £1,800 per year, as borrowers are forced to renegotiate home loans after the most aggressive round of interest rate hikes in decades.
Goldman Sachs economists said that despite a recent price war among lenders cutting remortgage costs, many households will still experience a dramatic leap in repayments compared with their previous deals. The Liberal Democrats have labelled 2024 the 'year of the squeezed middle', with combined hits from higher mortgages, taxes, and energy bills expected to exceed £4,700 for the typical household.
Borrowers are turning to various measures to cope, including renting out rooms, drawing down pensions early, and postponing having children. The government has attempted to ease the burden with a £10bn cut in national insurance, but this is offset by a six-year freeze on income tax thresholds, pushing the tax share of the economy to its highest since World War II.
Pressure may ease from spring, with the Bank of England expected to cut interest rates to below 4% by year-end from the current 5.25%. This expectation has triggered a bidding war among lenders, with HSBC, Halifax, and TSB updating fixed-rate deals, and the average two-year fixed rate falling to its lowest in nearly seven months. However, borrowing costs remain more than double their level two years ago.
About 55% of UK mortgages have already moved to higher rates since December 2021, and a further 5 million mortgages are expected to be repriced by 2026. Torsten Bell of the Resolution Foundation cautioned that while falling rates may be reported as good news, homeowners will still see their bills rise by hundreds of pounds a month.
