Families facing extra £2,900 a year on their mortgage as the impact of interest rate rises deepens

Homeowners re-mortgaging next year face a £2,900 increase in annual repayments on average as the impact of interest rate rises deepens.

Figures from the Resolution Foundation show the impact of the hikes – already taking a record toll on homes – still has further to run through next year and up to 2026.

The think-tank used data from the Office for National Statistics on mortgages across the country to work out the average increase families would face.

Some 7.5million households are expected to be affected by the ongoing rises in rates.

The Bank of England has been raising interest rates sharply since December 2021, when they stood at 0.1 per cent, to reach 4.5 per cent today. They are expected to climb to 4.75 per cent next week and possibly 6 per cent in 2024 – with inflation proving hard to tame.

The Bank of England has been raising interest rates sharply since December 2021, when they stood at 0.1 per cent (file image) 

It represents a ‘rolling living standards hit to millions of households in the run-up to the next general election’, the think-tank said.

Yet for those on fixed term deals agreed at lower rates, the crunch is yet to come – and many homeowners may struggle to afford it.

Analysis published by the Institute for Fiscal Studies yesterday suggested 2.1million middle-income mortgage holders would have to raid their savings or ask for help to meet the added expense.

Interest rate expectations have picked up significantly since last month, when it was expected they would peak at under 5 per cent.

That would have meant borrowers remortgaging next year adding £2,000 to their annual repayments, a figure that has now jumped to paying £2,900 more compared to before rates started rising, the Resolution Foundation said.

While £2,900 will be the typical extra repayment bill faced, it will be higher for many.

For example, a borrower who took out a five-year fix in 2019 on a £300,000 loan will typically be paying £3,900 a year more if they remortgaged under the same terms next year.

With interest rates continuing to rise, lenders have been desperately repricing deals. This week Nationwide and NatWest introduced further hikes on their mortgage products. HSBC and Santander temporarily pulled some deals from sale.

Across the market, the average two-year deal stands at 5.98 per cent, up from 5.32 per cent a month ago. Five-year deals have also risen, climbing from 5.03 per cent to 5.62 per cent.

The Resolution Foundation said two-year deals now looked set to hit 6.25 per cent later this year and would not fall back to 4.5 per cent until the end of 2027.

Wage figures published this week – which showed that pay is rising at a historically high rate – added to the market turbulence.

Simon Pittaway, a senior economist at the think-tank, said: ‘Market expectations that interest rates are going to rise even higher, and stay higher for longer, are having a major effect on the mortgage market, with deals being pulled and replaced with new higher-rate mortgages.’