London homeowners face a £700 million mortgage bombshell this year as thousands of borrowers on cheap fixed deals are forced to refinance them at far higher rates.
More than 100,000 fixed-rate loans secured on homes in the capital are due to expire between now and the end of the year, mostly five and two-year deals taken out in 2018 and 2021 respectively when mortgage rates were at all-time lows of around the two per cent mark.
However, a succession of Bank of England rate rises since December 2021 means that fixed mortgage rates now average 5.28 per cent for two-year deals and five per cent for five-year deals, according to the latest figures from Moneyfacts.
An Evening Standard analysis of data from industry body UK Finance and the House of Commons library shows that this will force huge numbers of homeowners to shoulder big increases in their housing costs that could have a major impact on the London economy.
With the average London mortgage standing at around £350,000 that would mean the monthly bill on a repayment loan with 20 years left to run going up by £539 a month, from £1,770 to £2,309, or nearly £6,500 a year. Across London as a whole that would add around £675 million to the cost of servicing mortgages this year alone with more likely to follow in 2024.
The far smaller number of tracker and variable rate mortgages are also set to get more expensive as the Bank of England continues to raise borrowing costs, bringing the total extra burden to around £700 million.
Mortgage rates spiked dramatically to well above six per cent in the aftermath of Kwasi Kwarteng’s disastrous mini -budget last September.
They had been gradually subsiding but any hopes that they would fall further this year were dashed last month when the Office for National Statistics revealed that inflation failed to fall as fast as predicted in March and remained above the 10 per cent mark for the seventh month in a row.
This makes it all but inevitable that the Bank’s monetary policy committee will vote for yet another raise in rates to 4.5 per cent when it next meets on Thursday.
City markets are pricing at least one more rise to 4.75 per cent over the summer with a strong possibility of yet another hike to five per cent by August and no prospect of significant falls until well into next year.
Liberal Democrat leader Sir Ed Davey said: “Mortgage misery is on the horizon for families across the capital because the Government has failed badly to control inflation.”
Paula Higgins, chief executive of the HomeOwners Alliance, said: “It’s going to be a big shock for people. It’s important for them to be active not complacent about the situation. There is lots of advice on our website about what they can do.
“They can overpay if they can or look at locking in a rate six months in advance. Hopefully people have been paying off debt so they have a bit more equity. Hopefully it’s a squeeze not a cliff but who knows with wages not going up as fast as inflation. We’re all poorer than we were.”
Meanwhile a million Londoners are being forced to get by on relative low incomes by the city’s sky-high housing costs, a new report has revealed.
It showed that before housing costs were taken into account 1.2 million people in the capital, including 400,000 children, were classed as in “relative low income” which means they are living in households with income below 60 per cent of the average in that year.
But once housing costs are factored in the figure rockets to 2.2 million, including 700,000 children, according to the analysis by the House of Commons Library into poverty in Britain.
The findings highlight that even though incomes in London are high compared with other regions, the extra wages are quickly being eaten away by soaring rents and mortgage. With housing costs, London leapfrogged to the joint second highest total number of people in such difficult financial situations, with 25 per cent of the population affected, the same as the North-East.
SOURCE: Evening Standard