Market News

UK Mortgage Costs Could Fall For 1.5 Million This Year, BOE Says - BLOOMBERG

JUNE 27, 2024

BY Philip AldrickBloomberg News

(Bloomberg) -- More than 1.5 million UK households will see their mortgage payments fall by the end of this year if interest rates are cut as markets expect, according to the Bank of England.

The figures, from the bank’s twice yearly Financial Stability Report, show the mortgage shock caused by the spike in rates to 5.25% from 0.1% at the end of 2021 is beginning to ease. In total, around 2 million borrowers on variable rates or on short fixed-rate deals will be better off by the end of 2026, it added.

The cost of housing has become a key battleground in the general election, to be held on July 4, which the opposition Labour Paty is on course to win. The improving fortunes of Britain’s households may raise fresh questions about Prime Minister Rishi Sunak’s surprise decision to call an early election, before borrowing costs could be cut.

Markets expect rates to be reduced to 4.75% by the end of this year, which would immediately help the 18% of household on variable deals, the bank said. “A growing number of fixed-rate mortgagors, who are already paying higher rates, may be able to refinance at a lower interest rate over the next two years,” it added.

Although payments are on course to fall for around 2 million of the UK’s roughly 10 million mortgage borrowers within two years, the bulk will see an improvement of less than £100 a month, the BOE’s charts show.

Overall, average monthly payments are due to rise by £180 – down from £240 estimate in the December FSR - as 3 million households face higher refinancing costs. The BOE said the 3 million are still on deals of less than 3%, the majority of which will have to refinance to higher rates. Over 5 million mortgage borrowers have already seen their costs rise since 2021.

The bank said households have proved resilient to the spike in interest rates but are have been using their savings and extending their mortgage terms to reduce upfront costs, which has pushed more of the debt burden into the future.

Aggregate debt to income has fallen to its lowest level since 2002, due to rising wages and low unemployment. Arrears and repossession rates are below levels seen in the 2008 financial crisis and in the 1990s. However, renters and low income households remain vulnerable and are increasingly having to draw debt through consumer credit, the bank said.


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