Richard Partington Economics correspondent
More than a quarter of homeowners on a fixed-rate mortgage face a surge in monthly payments before the next election, in a financial timebomb that will rock the Conservatives as voters prepare to go to the polls.
With the Bank of England expected to increase its main interest rate for the 13th time in a row next week, figures shared with the Guardian by UK Finance, the banking industry trade body, show more than 2.4m fixed-rate mortgage deals will expire between now and the end of 2024.
The prospect of millions more households facing a dramatic rise in borrowing costs comes after a week of renewed turbulence in financial markets as City traders bet the Bank rate would reach close to 6% before Christmas.
In convulsions last seen during the chaos of the ill-fated Liz Truss premiership, Britain’s biggest lenders, including Nationwide, Nat West and HSBC, have scrambled to pull hundreds of cheaper deals in recent days, and have raised the cost of new mortgages to the highest level since the 2008 financial crisis.
“It seems to me the government and the Bank are in very deep trouble,” said David Blanchflower, a former member of the Bank’s ratesetting monetary policy committee. “The reason is because inflation is higher in the UK, and the markets don’t believe they are getting it down. They’re completely and utterly lost.
“Obviously homeowners are going to get completely whacked. This is going to kill the mortgage market off, hit homeowners like crazy, and they’ll blame the government.”
Sounding the alarm over the worsening mortgage
crunch, economists at the Resolution Foundation thinktank said total annual home loan payments were now on course to rise by £15.8bn by 2026 – costing £2,900 for the average household remortgaging next year.
Much of this mortgage timebomb is yet to hit consumers because millions of households are still on fixed-rate deals struck before the Bank of England started raising interest rates from a record low of 0.1% in December 2021.
Almost all of the financial blow will land before the next election, which must be held by 28 January 2025.
“This will deliver a rolling living standards hit to millions of households in the run-in to the next general election,” the thinktank said, warning that the average two-year fixed mortgage was now expected to hit 6.25% this year.
According to the figures from UK Finance, about 800,000 fixed mortgages expire before the end of this year, with a further 1.6m ending in 2024. The figures do not include variable rate and tracker mortgages, which will already have risen sharply, or buy-to let mortgages.
In total as many as 4.4m households will have exited fixed deals between the start of the Bank’s rateraising cycle and end of 2024.
Less than a third of UK households own their home with a mortgage, with the majority choosing a fixedrate deal. However, renters are also being squeezed, as landlords pass on higher costs by pushing up rents at among the fastest rates on record.
With ministers under growing pressure over the cost of living crisis, politicians called for urgent action to support the poorest households dealing with the surge in borrowing costs.
Ed Davey, the leader of the Lib Dems, has called for a £3bn emergency mortgage protection fund to support those at risk of losing their homes. “If we don’t give that sort of help to those people, you’d see a spiral down and it will hit the whole economy,” he told the BBC. “My worry is that we’re going to see lots of other families losing their homes, and we could be in a spiral of repossessions.”
Industry figures show mortgage repossessions surged by 50% in the first quarter compared with the final three months of 2022, though they still remain substantially lower than in previous years.
This week Jeremy Hunt, the chancellor, insisted the Bank of England must see through its policy of raising interest rates to bring down inflation, despite the pressure on households. The Treasury is understood to be wary that any intervention could undermine Threadneedle Street’s efforts to tackle inflation.
Labour is seeking to capitalise by directly linking the turmoil in mortgage markets to the government’s handling of the economy. “Every day now, the Tory mortgage penalty is hitting more and more households across Britain,” said Rachel Reeves, the shadow chancellor.
Observers warned the weight of pressure on the government to act could become too difficult to ignore as the Conservatives, trailing in the polls, prepare to enter a tough election battle.
“If we were a bit further away from the election cycle, it’d be easier for the government to stay the course and let monetary policy do its work. Which is what the Treasury wants,” said Alfie Stirling, the chief economist at the Joseph Rowntree Foundation anti-poverty charity.
“But I think No 10 will look at what’s shaping up to become a tough election, and I think it’ll be increasingly difficult for the government not to do something.”