More than a quarter of UK homeowners on a fixed-rate mortgage are heading for sharp increase in monthly payments before the next election, in a financial timebomb that will rock the Conservatives just as voters prepare to choose the next government.
With the Bank of England expected to increase its key interest rate next week for the 13th time, figures shared with the Guardian by UK Finance, the banking industry trade body, show more than 2.4m fixed-rate homeowner deals will expire between now and the end of 2024.
The prospect of millions of households facing a dramatic rise in borrowing costs comes after a week of renewed turbulence in financial markets as City traders bet the Bank rate would reach close to 6% before Christmas.
In convulsions last seen during the chaos of the ill-fated Liz Truss premiership, Britain’s biggest lenders, including Nationwide, NatWest and HSBC, have scrambled to pull hundreds of cheaper deals in recent days, and raised the cost of new home loans to the highest level since the 2008 financial crisis.
“The moron premium is back,” said David Blanchflower, a former member of the Bank’s rate-setting monetary policy committee. “It seems to me the government and the Bank are in very deep trouble. The reason is because inflation is higher in the UK, and the markets don’t believe they are getting it down. They’re completely and utterly lost.”
“Obviously homeowners are going to get completely whacked. This is going to kill the mortgage market off, hit homeowners like crazy, and they’ll blame the government.”
Sounding the alarm over the worsening mortgage crunch, economists at the Resolution Foundation thinktank warned total annual home loan payments were on course to rise by £15.8bn by 2026 – delivering a £2,900 blow for the average household remortgaging next year.
Up to 60% of this mortgage timebomb was yet to hit consumers because millions of households were still on fixed-rate deals struck before the Bank of England started raising interest rates from a record low of 0.1% in December 2021.
Almost all of the financial blow will land before the next election, which must be held by 28 January 2025, with households expected to face as much as £15bn in additional payments in time for Christmas next year.
“This will deliver a rolling living standards hit to millions of households in the run-in to the next general election,” the thinktank said, warning that the average two-year fixed mortgage was now expected to hit 6.25% later this year, and would fall back to only about 4.5% in 2027.
According to the figures from UK Finance, about 800,000 fixed mortgages will expire before the end of this year, with a further 1.6m coming to an end in 2024. The figures do not include variable rate and tracker mortgages, which will already have risen sharply, or buy-to-let mortgages.
In total, up to 4.4 million homeowners are expected to exit fixed deals between the start of the Bank’s rate-hiking cycle and the end of 2024.
Less than a third of UK households own their home with a mortgage, with the majority buying a fixed-rate deal. However, renters are also being squeezed, as landlords pass on higher costs by pushing up rents at some of the fastest rates on record.
With the government under growing pressure over the cost of living crisis, politicians called for urgent action to support the poorest households dealing with the surge in borrowing costs.
Ed Davey, the leader of the Liberal Democrats, has called for a £3bn emergency mortgage protection fund to support those at risk of losing their homes because they cannot keep up with payments.
“If we don’t give that sort of help to those people, you’d see a spiral down and it will hit the whole economy,” he told the BBC. “My worry is that we’re going to see lots of other families losing their homes, and we could be in a spiral of repossessions.”
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Industry figures show mortgage repossessions soared by 50% in the first quarter compared with the final three months of 2022, though they remain substantially lower than in previous years.
This week Jeremy Hunt, the chancellor, insisted the Bank of England must see through its policy of raising interest rates to bring down inflation, despite the pressure on households. The Treasury is understood to be wary that any intervention could undermine Threadneedle Street’s efforts to tackle inflation.
Labour is, however, seeking to capitalise by directly linking the turmoil in mortgage markets to the government’s handling of the economy. “Every day now, the Tory mortgage penalty is hitting more and more households across Britain,” said Rachel Reeves, the shadow chancellor.
“Our country has huge potential. We could be focused on building jobs and industries of the future – but instead, the Tories crashed our economy and left working people paying the price and our economy badly weakened.”
Observers warned the weight of pressure on the government to act could become too difficult to ignore as the Conservatives, trailing in the polls, prepare to enter a tough election battle.
“If we were a bit further away from the election cycle, it’d be easier for the government to stay the course and let monetary policy do its work. Which is what the Treasury wants,” said Alfie Stirling, the chief economist at the Joseph Rowntree Foundation poverty charity.
“But I think No 10 will look at what’s shaping up to become a tough election, and I think it’ll be increasingly difficult for the government not to do something.”
A UK Finance spokesperson said: “Around 800,000 mortgage customers are scheduled to come off their fixed-rate deals later this year, and will likely face higher monthly payments.
“If you’re struggling with your finances, you should speak to your lender as early as possible – don’t put it off. Lenders have a range of tailored options available and will work with you to find the best one for your individual circumstances.”
https://news.google.com/rss/articles/CBMid2h0dHBzOi8vd3d3LnRoZWd1YXJkaWFuLmNvbS9tb25leS8yMDIzL2p1bi8xNy91ay1ob21lb3duZXJzLWZhY2UtaHVnZS1yaXNlLWluLXBheW1lbnRzLXdoZW4tZml4ZWQtcmF0ZS1tb3J0Z2FnZXMtZXhwaXJl0gEA?oc=5
2023-06-17 09:59:00Z
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