UK debt market sell-off threatens mortgage pain for households

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Turmoil in the UK’s financial markets is likely to push up borrowing costs as around 700,000 British households face higher borrowing costs when their fixed-rate deal ends in 2025.

Mortgage rates were predicted to fall this year, easing the pain for homeowners. But recently sold by UK government debt marketsDue to persistent inflation and severe public debt stress, borrowing costs may remain high for a longer period of time.

That shift also led to a sharp increase in mortgage rates, which are watched closely by lenders.

The two-year sterling interest rate swap, which measures the average interest rate over 24 months, rose to more than 4.5 percent from below 4 percent in mid-September.

Among the 2.4 million households that took out mortgages at higher rates in 2023 and 2024, a mortgage shock is expected this year, according to analysis by property group Savills.

Lucian Cook, head of housing research at Savills, said the “strain on household finances” had the effect of “continuing cash outflows” as mortgage costs rose. EconomyHe said.

Most UK homeowners fix their mortgages for two or five years, meaning the shock of big borrowing costs starting in 2022 – and rising after Lease Trust’s disastrous “mini-budget” – is hitting households for years to come. .

Rising mortgage payments are a key contributor to the cost of living. Higher interest rates will increase annual housing costs for property owners by £1.27bn by 2025, Savills projects.

These estimates are based on forecasts that predict mortgage rates will drop to 4.0 percent by the end of the year.

But investors are increasingly worried about government debt, tight inflation and the prospects for the UK economy, which have pushed up government borrowing costs and exchange rates in the past few weeks.

Simon Gammon, managing partner at Knight Frank Finance, said: “Swaps have moved materially so the price pressure is there for all lenders. . . If the current trend continues and high volatility continues, we will likely see mortgage rates move higher across the board.

The Bank of England, which began cutting benchmark interest rates last year from 16-year highs, warned that “the full impact of higher interest rates has not yet been passed on to all mortgages”.

The central bank said in November that the average home owner would see their monthly payments rise by 22 per cent, or £146, when they reach the end of a certain amount over the next two years.

The BOE added that the share of households that are behind on their mortgage payments or are severely overburdened is at historically low levels.

The need to bear high costs has caused many homeowners to stop housing, few people can afford to trade for a more expensive house.

Cook said at Savills: “Only after this is completely washed away . . . You see people rethinking about moving.”

There should be some good news for borrowers renewing two-year fixed deals. Recently, they have adjusted to the maximum loan costs and will see their monthly costs increase.

In the year Of the more than 1 million fixed-rate rebates that expire in 2025, about 340,000 are two-year adjustments where borrowers typically save money by refinancing. The rest were long repairs where resale would be more expensive, Savills said.

Additional reporting by Ian Smith