UK households coming to the end of the fixed-rate mortgage deal next year face an average increase in annual payments of £2,900, prompting sage Sunak to defuse the election-year time bomb.
The rise in payouts, estimated by the Resolution Foundation think-tank, reflects concerns that the UK has worse inflation than other countries and that the Bank of England will need to raise interest rates to around 6 percent next year, when a general election is being held. expected
Liberal Democrat leader Sir Ed Davey called on Friday for a £3bn “mortgage protection fund” targeted at people whose homes would otherwise be repossessed, in a sign of growing political heat over the issue.
But the prime minister and his chancellor, Jeremy Hunt, argue that such a move would be dangerous because it would fuel inflation.
Sunak said on Wednesday that the government’s “number one economic priority” is curbing high inflation.
The political row comes after another week of mortgage rate hikes by lenders including NatWest, Nationwide and HSBC, following weak official inflation data last month that prompted financial markets to raise expectations of an interest rate hike by the BoE.
“It is serious,” said a senior government official. “So we are fully focused on halving inflation by the end of the year. Inflation is a disease of economy.
The BoE is likely to raise interest rates from 4.5 percent to 4.75 percent when the Monetary Policy Committee meets on Thursday, although some economists believe a bigger hike is possible if there is another bad set of inflation data on Wednesday.
BoE Governor Andrew Bailey said on Tuesday that inflation was “taking much longer” than hoped to come down, and a central bank survey found that public confidence in its ability to control inflation fell to its lowest level since records began.
In a report, the Resolution Foundation estimated that 1.6mn fixed-rate mortgages are due to expire in 2024.
Simon Pittway, author of the think-tank’s report, said households remortgaging in 2024 faced the biggest increase in annual payments, as it was likely to be the year of peak interest rates, and most borrowers would have enjoyed cheaper deals earlier.
Although the average annual increase in payments next year is estimated to be £2,900, smaller households with large debts could see a significantly higher increase.
The Resolution Foundation estimates that the average rate on a two-year fixed mortgage will rise to 6.25 percent this year and not fall below 4.5 percent until late 2027.
“Recent moves in market interest rates suggest that the grim outlook for UK mortgages has worsened,” Pittway said.
“If rates move in line with expectations, UK households will face a prolonged and historic mortgage squeeze.”
Once almost all borrowers move to more expensive mortgage products, the Resolution Foundation estimated they would collectively pay £15.8bn more each year to service their debt than in 2021, when the BoE starts raising interest rates in response to inflation.
Labor has claimed that landlords are paying a “Tory mortgage premium”. Former Labor Treasury Minister Liam Byrne said: “The single most critical piece of literature that arrives through a voter’s letterbox between now and the election will be their mortgage statement.”
