Proactive Investors - London homeowners face soaring mortgage bills as they look to remortgage at a time of rising interest rates.
The Centre for Economics and Business Research (CEBR) estimates bills in the capital could climb by as much as £7,300, while 3.5mln borrowers across the UK are facing higher payments as the Bank of England continues to jack up interest rates to deal with stubborn inflation.
Nationally, homeowners will have to spend nearly an extra £9bn in interest over 2023 and 2024 as they are forced to refinance at rates that are double what they are used to, the CEBR said.
In total, 2.5mln homeowners will come to the end of fixed rate deals across 2023 and 2024 while a further 1mln are on variable rate deals.
The CEBR has forecast that mortgage rates, across all deposit sizes, will average 5.1% across 2023 and 4.6% in 2024.
According to Moneyfacts, a buyer taking out a two-year fix in June 2021 paid an average rate of 2.59%. This means the annual cost of taking out a typical £200,000 loan has jumped by more than £5,000.
Benjamin Trevis, of CEBR, warned that homeowners coming to the end of fixed rate deals face a “grim reality” as the cost of refinancing strains their incomes.
Trevis said: “While the Bank’s tightening cycle might be nearing its end, the impact on households is only just beginning.”
The average UK homeowner will have to pay £3,900 a year more in interest when they refinance this year compared to their previous deal. This means their monthly mortgage bills will jump by £325.
Homeowners in London, where house prices are the highest, will see the biggest increases. A London homeowner coming to the end of a fixed rate deal this year will have to pay an extra £608 per month when they remortgage.
Homeowners in the South East will have to pay an extra £450 per month when they remortgage in 2023.
Mortgage rates have followed interest rates higher as the Bank of England has tried to stem stubborn inflation. Interest rates are now expected to peak at 5.5%, compared to around 4.5%, a few months ago.
Bank of England official Jonathan Haskel, a member of the Monetary Policy Committee, said that further increases cannot be ruled out because prices are still rising faster than the BoE’s 2% target.
“We are monitoring indicators of inflation momentum and persistence closely,” he wrote in the Scotsman newspaper.
“My own view is that it’s important we continue to lean against the risks of inflation momentum, and therefore that further increases in interest rates cannot be ruled out.”
Elsewhere, HSBC (LON:HSBA)'s UK boss today warned that mortgage costs have further to rise but it is "trying to limit the pain".
Ian Stuart told Sky's Ian King Live it had 300,000 customers coming off fixed rate deals this year and admitted they faced a shock in the current market.
"If you took a mortgage maybe two years ago or five years ago, myself included, you will come off a mortgage rate of around 1.5% and your new mortgage is going to cost something closer to 5%."