The Centre for Economics and Business Research (Cebr) now expects the 2-year (75% LTV) mortgage rate to average 5.1% in 2023, indicating the Bank of England is likely to raise rates even higher than initially anticipated.
Cebr has analysed the regional impact of these escalating mortgage rates across the UK due to their wider economic significance.
They have utilised the Office for National Statistics (ONS) estimates of mortgages that are due to be renegotiated over 2023 and 2024, estimated to be around 2.5 million.
This group of households will be exposed to the recent hike in rates, adding to the estimated 1.0 million already exposed due to their variable rate deals.
Following recent data from the Bank of England, Cebr has assumed that 28% of refixers will renegotiate onto a 2-year fixed deal, with the rest opting for 5-years. This trend indicates a marked increase in the preference for 5-year deals over the past six years.
In aggregate, Cebr estimates that mortgage holders seeking to renegotiate their deal in the next two years will face a significant £8.7bn increase in their payments, directly attributed to tighter monetary policy. Their estimates assume that mortgage rates will average 5.1% in 2023 and 4.6% in 2024.
London will endure the most significant rise in aggregate cost for refixers, with mortgage costs increasing by £1.8bn over 2023 and 2024, due to the average home price in the capital being £530,000, nearly twice the UK average of £282,000.
Meanwhile, the South East will experience the next highest rise in payments, up £1.7bn in 2023, due to the region holding the largest share of all mortgages in the UK in 2022, at 15%.
Northern Ireland and the North East are projected to see the lowest increase in mortgage payments, with refixers in Northern Ireland seeing a £126m increase and in the North East, a £159m increase.
Benjamin Trevis, an economist at Cebr, said: “Our estimates reveal a substantial strain on incomes across the UK that is yet to be fully felt. In other words, while the Bank’s tightening cycle might be nearing its end, the impact on households is only just beginning.
“With mortgages often occupying the most significant portion of household expenses, our estimates underscore the grim reality of rising rates, which will exert further strain on already stretched incomes, and hence the wider consumer economy, well into 2024.”
