Startling data published by the government’s independent forecasting unit indicates that homeowners could be headed for the biggest mortgage interest hike seen since 2008.
By 2023, overall interest payable on a mortgage could increase by as much as 13%.
Members of the Liberal Democrat Party have warned that for homebuyers with an average mortgage of £211,000, the increase would constitute an additional £500 in interest payments per year. However, investment firm AJ Bell said that the costs could be even steeper for those with larger mortgages, who may be looking at £1,000 more every year in interest payments.
Interest rates remain at historic lows
For the time being, Bank of England base rates are being held at an all-time low of 0.1%. But both the Bank of England and the UK’s leading economists have warned that significant increases to base rates over the coming year are inevitable.
Specifically, the consensus now points to an initial increase of 0.25%, followed by a further three increases of the same amount to take base rates back to 1% by the end of next year.
In response, many major lenders are already beginning to withdraw their most competitive mortgage deals from their offerings. Brokers have reported major shifts in the mortgage lending market across the UK, with a wide variety of price shifts having taken place during the last few days alone.
The Office for Budget Responsibility data now points to significant year-on-year increases in mortgage interest payments, which could see homeowners facing an increase in costs next year of around 5.6%. This is then predicted to increase to around 13% in 2023, after which it will return to 5.4% in 2024.
The upcoming hike would be the biggest recorded since 2008, potentially leaving millions of homeowners out of pocket.
Higher costs for all mortgage payers
The figures have become a major political point of contention, with the potential costs for all mortgage payers having been highlighted by the Liberal Democrats.
Commenting on the predicted hikes, the party stated that the average mortgage payer at a variable rate of 3.6% would be looking at around £42 per month in additional interest payments, or £510 per year. Those with fixed-rate home loans at 2% would be liable for an additional £25 monthly payment, adding up to £300 per year.
“This ghastly forecast should send a shiver down the chancellor’s spine,” said Sir Ed Davey, Liberal Democrat leader.
Speaking on behalf of AJ Bell, their head of personal finance predicted even greater costs for mortgage payers over the coming years.
“Someone with £250,000 of borrowing who fixed earlier this year and renewed in 2023 would see £600 a year added to their mortgage costs, while someone with £450,000 of borrowing would see their costs hike by £1,068 a year,” she said.