The sale of UK mortgages threatens to hurt families

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Around 700,000 British households face rising mortgage costs when their fixed-rate deals expire in 2025, as turmoil in UK financial markets in recent weeks threatens to escalate borrowing costs.

Mortgage rates were expected to fall this year, easing the pain for homeowners. But the recent sale of UK government debt marketsdriven by concerns about high inflation and over-lending to the public, can keep borrowing costs high for a long time.

The change also caused exchange rates, which are closely watched by lenders to sell their mortgages, to rise significantly.

The two-year interest rate swap, which measures the 24-month interest rate, rose from less than 4 percent in mid-September to more than 4.5 percent.

The debt crisis that awaits households this year comes on top of 2.4 million households who had to repay with higher rates in 2023 and 2024, according to analysis by property group Savills.

Lucian Cook, head of housing research at Savills, said the “pressure on household finances” due to rising housing costs “is having the effect of continuing to draw down income the economy“.

Most homeowners in the UK are fixing their mortgage rates for two or five years, which means fears of a big rise in borrowing costs starting in 2022 – and increased after the crisis. Liz Truss’s “mini-Budget” – has affected families for years. .

Rising mortgage payments have been a major contributor to the cost of health problems. Higher interest rates will add £1.27bn to annual housing costs for property owners refinancing by 2025, Savills projects.

These estimates are based on forecasts that predict mortgage rates will fall to 4.0 percent by the end of the year.

But investors are now more worried about the government debt, inflation and the prospects of the UK economy, which in the past few weeks has raised the government’s borrowing costs and exchange rates.

Simon Gammon, chief executive of Knight Frank Finance, said: “Swaps have gone materially so pricing pressure is on for all lenders . . . if current trends continue continue to have high swaps, we will probably see credit rates rise across the board.”

The Bank of England, which last year began cutting its interest rate from 16 years, warned that “the full impact of higher interest rates has not yet passed on to all property buyers “.

The central bank said in November that the average homeowner who reaches the end of the fixed rate over the next two years will see their monthly payments increase by 22 per cent, or £146.

The share of households behind or overburdened by mortgage payments remains low by historical standards, the BoE added.

The need to absorb higher costs has caused many homeowners to give up on moving, and fewer people are able to trade up to more affordable housing.

Cook at Savills said “only when this is completely canceled . . . will you see people reconsider moving”.

However, there should be good news for borrowers returning to fixed two-year contracts. They are stuck near the latest peak in borrowing costs and will see their monthly costs drop significantly.

Of the more than 1mn fixed-rate deals that expire in 2025, about 340,000 will be two-year fixes where borrowers typically save money by paying back. The rest were long-term repairs where the payback would be expensive, Savills said.

Additional reporting by Ian Smith