“Buried” in a report published by the Office for Budget Responsibility (OBR) is that mortgage interest payments were set for their biggest rise since at least 2008.
The OBR figures for predicted year-on-year growth in mortgage interest payments – included in one of the main report’s supplementary tables – suggest homeowners need to be braced for a 5.6% increase in costs next year, rising to 13% in 2023 before falling back to 5.4% in 2024
Householders with the average mortgage of £211,000 could see their payments go up by more than £500 a year. The data indicated that an average borrower on a standard variable rate of 3.26% would find their payments rising by more than £42 a month, or £510 over a year. For a fixed-rate home loan of 2%, the increase would be £25 a month, or £300 a year.
The investment firm AJ Bell said some people with larger mortgages could have to pay more than £1,000 extra a year.
AJ Bell said the data suggested that those who signed up to a record low two-year fixed-rate deal earlier this year could face a big rise when they came to remortgage in the first half of 2023.
“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,” said Laura Suter, head of personal finance at the firm. She added that someone on a current average variable rate deal of 2.4% and who had a £250,000 mortgage could find their annual costs increasing by £696 by 2023, while those with £450,000 of borrowing would see their costs rising by £1,260 a year.
Interest rates are at a historic low of 0.1%, but the financial markets have priced in a rate rise when the Bank of England meets next week, which could lift the base rate to 0.25%, and then a 0.25-point increase in December. With two more 0.25% hikes forecast for next year, that could take the base rate to 1% by the end of 2022.
Banks and building societies have already started pulling their cheapest mortgage deals from the market, with some brokers saying that price changes had been coming “thick and fast” during the past few days.