The think tank, Resolution Foundation, has predicted that as interest rates rise, individuals seeking to remortgage their homes will face an average annual increase of £2,900 starting from 2024.
The forecast suggests that the average two-year fixed rate deal is expected to reach 6.25% in the near future, leading to a challenging situation in the UK mortgage market, commonly referred to as a “mortgage crunch.”
The group estimates that approximately 800,000 individuals will be looking to remortgage in the coming year. In response to this, a Treasury spokesperson has stated that they have implemented “tailored support” to assist homeowners who are facing difficulties in meeting their mortgage payments.
In recent weeks, borrowers have already experienced significant rate hikes as lenders increased their rates. Furthermore, it is anticipated that the Bank of England will further raise interest rates in the upcoming week.
During the week, Chancellor Jeremy Hunt stated that the Bank of England was left with “no alternative” but to raise rates as a measure to address inflation and control the upward trend in prices.
Currently set at 4.5%, the Bank’s base rate is projected by the Resolution Foundation to reach a peak of nearly 6% by mid-2024.
The impact of these expectations has swiftly influenced the mortgage market, leading to the withdrawal of certain deals or their replacement with higher-rate alternatives.
As reported by financial data firm Moneyfacts on Friday, the average two-year fixed-rate loan for homeowners currently stands at 5.98%, a notable increase from the 3.14% recorded a year ago.
According to the Resolution Foundation, an independent think-tank dedicated to enhancing living standards for individuals with low to middle incomes, it anticipates that the average two-year mortgage deal will not drop below 4.5% until the conclusion of 2027.
This projection is expected to considerably amplify the extent of the ongoing mortgage crunch.
In total, annual repayments are projected to increase by £15.8 billion per year by 2026 compared to the period before the Bank commenced its cycle of rate hikes in December 2021.
According to Torsten Bell, the director of the Resolution Foundation, individuals frequently choose longer mortgage terms when they opt for remortgaging.
During an interview on BBC Radio 4’s Today programme, Torsten Bell stated, “Individuals are requesting longer mortgage terms in order to alleviate the immediate burden of higher mortgage payments.
This approach provides some relief during challenging times in the coming months and years, but it ultimately results in significantly higher overall mortgage costs. How households choose to handle this situation determines whether they pay more now or in the future.”
Source : bbc.com