Mortgage rates: Warning of 27% surge in costs as cheap deals scrapped
Average mortgage repayments have surged by 27 per cent for borrowers
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Average mortgage repayments have surged by 27 per cent for borrowers who saw their deal end between September and February.
The last of the ultra-low borrowing rates are predicted to deliver a £24billion blow on the economy this year.
According to mortgage broker London Money which looked at nearly 200 clients whose old fixed-rate deals had ended, the average monthly repayments have risen by £317.50 a month on a loan of around £325,000.
The new data is the first evidence of how a quick rise in interest rates, which began in December 2021, has affected borrowers used to mortgage rates of between one and two per cent over the past ten years.
The average monthly repayments have risen by £317.50 a month on a loan of around £325,000
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Last week, the Office for Budget Responsibility (OBR) said that rates, which are at around four per cent, are expected to peak at 4.2 per cent by the end of 2027 as borrowers come off their old, cheap fixed deals.
The consultancy Capital Economics has predicted that households will have to spend £65billion every year on mortgage interest by the end of this year, up from £41billion.
While the OBR expects living standards to fall 5.7 per cent across the next two years, which is the largest two-year drop since records began in 1956.
Martin Stewart, the founder of London Money, told The Times: “This is money that won’t be going into your local bakery or the economy, it’s going to be sitting on a bank’s balance sheet and it’s billions of pounds that won’t be going on discretionary spending.
"Economically we’re on a bit of a cliff-edge, everything’s been built on 15 years of cheap borrowing, and you can’t take that away in 15 months without causing significant pain.”
Stewart explained that clients were making all or part of their mortgages interest-only and extending the terms of their loans in a bid to cope with higher mortgage rates.
He said: “I rang a client this week whose payments will quadruple from £500 to £2,000.
“In London I think people will be able to absorb it more because of higher incomes, but outside the shires this is really going to hurt.”
Experts predict that households will have to spend £65 billion every year on mortgage interest by the end of this year
PA
Capital Economics claims that only a third of the impact of higher interest rates had been felt by households because of the number of people still on old fixed mortgages.
According to data from the consultancy CACI provided by the bank First Direct, around £236.8 billion worth of mortgage deals come to the end of their fixed terms this year,
A total of 1.7 million homeowners will face higher payments this year when their deals end.
The OBR predicted that the rate of inflation would fall from 10.1 per cent in January to 2.9 per cent by the end of this year.