London homeowners looking to renegotiate their mortgage this year face a whopping £7,300 rise in annual costs as experts warn of the “grim reality” of rising interest rates.
The Bank of England is predicted to hike interest rates for the 13th consecutive time this year to 5.5 per cent in efforts to cool soaring inflation, with the decision set to harm property owners in the capital which are due to refinance their mortgage in 2023 and 2024.
Analysis by the Centre for Economics and Business Research (CEBR) predicts that the BoE rates rise will see mortgage rates average 5.1 per cent in 2023 and 4.6 per cent in 2024 – meaning homeowners nationally looking to negotiate fixed-term deals face a £8.7bn increase in payments.
In London, mortgage costs are set to be up by £1.8bn over 2023 and 2024, as house prices remain largely more expensive than homes across the rest of the UK.
“While the Bank’s tightening cycle might be nearing its end, the impact on households is only just beginning,” Benjamin Trevis, economist at CEBR warned.
“With mortgages often occupying the most significant portion of household expenses, our estimates underscore the grim reality of rising rates, which will exert further strain on already stretched incomes, and hence the wider consumer economy, well into 2024,” he added.
The news adds to a number of damning reports about the housing market, following signs in early spring that the market was improving.
Net mortgage approvals for house purchases fell from 51,500 in March to 48,700 in April, and Nationwide’s latest figures show that that the annual rate of house price growth slipped back to -3.4 per cent in May from -2.7 per cent in April.
The mortgage affordability crisis has cast a dark shadow over those seeking to remortgage their homes, leaving a trail of challenges in its wake,” Myron Jobson, senior personal finance analyst at interactive investor, told City A.M.
“The golden era of low mortgage rates has come to an end following a rapid rise in interest rates to combat red hot and sticky inflation. Mortgage costs are predicted to rise further still after recent higher than expected inflation figures raised forecasts of how much UK interest rates will go up.”
He added: “The uptick in mortgage rates is a kick in the teeth for mortgage holders who have come off a fixed rate deal in recent history and face forking out hundreds of pounds more a month on mortgage repayments. This financial strain weighs heavily on homeowners, particularly when their incomes fail to keep pace with these mounting costs.”