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NEWS: Half of UK Mortgage Holders Face Payment Hikes by 2027
The Bank of England (BoE) has revealed that nearly half of UK mortgage holders are set to face higher monthly payments over the next three years.
According to the Bank of England's Financial Stability Report, around 4.4 million households will experience increased mortgage costs by 2027, with approximately 420,000 families bracing for monthly hikes of £500.
This is primarily due to an increasing number of households coming off low fixed-rate mortgages left over from pre-2022. It’s been clear for a while that we won’t be returning to sub-1% mortgage rates, so this was somewhat of an inevitability despite the BoE base rate being reduced to 4.75% from 5.25% this year.
Rate Increases to Hit Homeowners
The report highlighted that between 1 million and 1.5 million households will endure a second round of rate increases after having already fixed their mortgages at higher rates since interest rates began rising in late 2021. Furthermore, an estimated 2.7 million mortgage holders, representing 31% of the total, are expected to refinance at rates above 3% for the first time before the end of 2027
The rising costs are attributed to higher interest rates, which have significantly impacted fixed-rate mortgage holders as their deals expire. A typical household transitioning from a fixed-rate mortgage within the next two years could face an additional £146 per month in repayments. While this figure is slightly lower than the £180 projected in June, the financial strain remains considerable.
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But This Isn't the Case for Everyone
Not all mortgage holders will face increases. About 27% of homeowners, equivalent to 2.4 million households, are expected to see their monthly payments decrease by 2027 after enduring earlier rate hikes. Meanwhile, 23% will experience no change in their mortgage payments.
The BoE's Financial Stability Report also underscored disparities in how interest rate rises have affected households. Over a third (37%) of mortgage holders have yet to fix their rates since borrowing costs began climbing in 2021, leaving them vulnerable to future increases. Conversely, falling rates may offer relief to some homeowners, enabling them to reduce monthly repayments and improve cash flow.
Arrears and Possession Claims on the Rise
Higher mortgage costs have contributed to a surge in arrears and possession claims. Hull County Court reported issuing 142 mortgage possession claims in the first three quarters of 2024, up from 133 claims in the entirety of 2023.
UK Finance data revealed an 18% year-on-year increase in homeowners in arrears, with the total reaching 87,930 by the third quarter of 2024. Landlords have been hit particularly hard, with arrears doubling over the same period.
When fixed-term, low-rate deals end, borrowers can suddenly find themselves facing hundreds of pounds in additional monthly costs. Coupled with the cost-of-living crisis, this can lead to severe financial distress.
The BoE’s recent quarter-point interest rate cut to 4.75% has raised hopes of easing financial pressures. Nonetheless, the bank cautioned that lower-income households and renters remain at risk.
Savings buffers have been spread thin in response to elevated costs, and the share of renters who are falling behind on payments is also going up.
Amid these challenges, policymakers emphasised the resilience of UK households compared to historical standards. The proportion of households falling behind on mortgage payments remains relatively low, and the share of income spent on repayments is expected to stay manageable for most.
First-Time Buyers Feeling the Squeeze
First-time buyers are also grappling with affordability issues. According to Nationwide, these buyers now spend an average of 37% of their take-home pay on mortgage payments, well above the long-term average of 30%.
Despite modest house price growth and rising wages, high mortgage rates and substantial deposit requirements continue to deter potential buyers.
What Does This Mean for Your Mortgage?
Costs aren't out of control like in 2022, but much of the British public is weathering the prolonged financial strain brought on by the cost of living crisis.
If you're concerned about your mortgage payments, here are some things you could do:
- Work with a mortgage broker
A mortgage broker can evaluate your options and ensure you’re on the most affordable deal. The advantages can range from making sure you have access to the cheapest interest rates to setting up a unique product, such as an offset mortgage, that can reduce interest rate payments over time.
- Downsize
Downsizing into a more affordable home is one of the most straightforward ways to reduce your monthly mortgage payments, but it should usually only be done when it's really necessary. Getting a smaller home lessens your home equity, which many put towards their retirement savings. Not to mention the numerous costs that come with moving house.
- Wait out the instability
Most homeowners who have just enough flexibility that they aren't concerned about missing mortgage payments will be holding tight and hoping that things improve in 2025. And with slight improvements year on year, it looks like easier economic circumstances could be on the horizon.
- Adapt your lifestyle
It looks like mortgage rates will be coming down a little bit slower than anticipated in 2025. Households that are remortgaging onto a higher rate over the next few months are likely looking at cutbacks in other areas to make up the shortfall. This trend shows that more homeowners are facing less expendable income even though the property market is marginally improving.
However, the resilience of those who have already been dealing with higher costs shows that there is a light at the end of the tunnel.
How Can You Find an Affordable Mortgage in 2024?
Despite current optimism about declining mortgage rates, deciding on the best option can be daunting.
We can help you compare mortgage products and their cost to find the best deal based on your specific situation from a wide range of lenders nationwide.
Related: What is a Professional Mortgage and Can You Get One?
Expert mortgage advisors have their finger on the pulse of the latest mortgage market news. Whether you're a first-time buyer or looking to refinance or invest in a BTL, we can help you understand your mortgage options so you feel confident you're making the right choice.
To see what we can do for you, call us at 0203 900 4322 or book a free consultation below.
