Britain’s £26 billion mortgage hike – five million households set for average mortgage bill increases of £5,100 by end of 2024

Over five million families are set to see their annual mortgage payments rise by an average of £5,100 between now and the end of 2024 – with £1,200 of that reflecting higher expectations of interest rate rises since the ‘mini-budget’ – according to new analysis published today (Saturday) by the Resolution Foundation.

With the UK’s low-interest rate era firmly at an end – the Bank of England is on course to have raised its policy interest rate from just 0.25 per cent at the start of this year, to over 5 per cent by early next year – the research examines the impact higher rates will have on the housing costs of the 7.4 million households who have a mortgage on their main home in Great Britain.

The Foundation notes that while 1.2 million mortgagor households on variable rate deals will see their housing costs rise swiftly in line with the Bank Rate, the impact on the 85 per cent of mortgagors on fixed rate deals will build over the coming years as they move on to new deals.

In total 1.7 million households will see their mortgage payments rise later this year (Q4 2022) – including 500,000 households on new fixed rate deals – and a further 400,000 households will pay more in early 2023.

By the end of 2024, 5.1 million mortgagor households – close to one-fifth of all households in Britain today – will be spending more on their housing costs as a result of increases in mortgage rates since Q3 2022.

These higher housing costs will be stark, says the Foundation. The average mortgagor household, including those that are protected by their fixed rate mortgage, will see their annual mortgage payments rise by £3,500 between Q3 2022 and Q4 2024.

Focusing on those 5.1 million households who will be affected between now and the end of 2024, the research finds that their average increase in mortgage costs is £5,100, of which £1,200 is the result of changes in interest rates expectations since the ‘mini-Budget’.

Affected mortgagor households in London will see the biggest increase – with average payments set to rise by £8,000 over this period, more than twice the level of the £3,400 increase experienced by mortgagor households in Wales. The impact in London will be concentrated however, as fewer than one-in-five households (19 per cent) in the capital have a mortgage.

In total, mortgage payments are set to rise by £26 billion a year by the end of 2024.

The research shows that although higher income households will face the biggest increases in mortgage costs in cash terms on average, it is lower income families with mortgages that face the biggest increase as a share of their income.

In early 2025, half of all mortgagor households – 3.8 million in total – will have seen higher mortgage costs absorb at least 5 per cent more of their net household income due to higher mortgage costs, including around 2 million households who will have lost at least 10 per cent of their household income.

The Foundation notes that a higher interest rates climate will create winners as well as losers, such as retired savers and young people saving up to buy their first home.

Finally, the Foundation’s analysis shows that while there was a smaller share of mortgagor households among Conservative voters in 2019 compared to Labour or SNP voters – 33 per cent, compared 40 and 41 per cent respectively – close to two-in-five households (39 per cent) in ‘Red Wall’ constituencies have mortgages, and are therefore likely to be exposed to far higher housing costs between now and the next election.

Lindsay Judge, Research Director at the Resolution Foundation, said:

“Households across Britain are currently living through an inflation-driven cost-of-living crisis as pay packets shrink and energy bills rise.

“The Government has responded with policies such as the welcome Energy Price Guarantee. But the Bank of England is responding too by raising interest rates, which will benefit savers but cause a fresh living standards crunch for mortgaged households across Britain.

“Between now and the next election, Britain is on track for a £26 billion mortgage hike as over five million households see their annual mortgage payments rise by £5,100 on average.

“With almost half of all mortgagor households on course to see their family budgets fall by at least 5 per cent from higher payments, the living standards pain from rising interest rates will be widespread.”