Rising mortgage rates and rent pile on misery for households

interactive investor comments on the latest ONS housing cost data.

The Office for National Statistics has today published analysis exploring how housing costs have and are likely to increase for mortgage holders and renters.

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Commenting, Myron Jobson, Senior Personal Finance Analyst, says: “Housing costs are going through the roof and are set to become even more expensive for many Britons in the coming months.

“Housing is the biggest expense for most households, so even a modest percentage increase in these costs could translate to a significant amount in pounds and pence terms.

“The climb in interest rates over the past year has marked the end of the golden era of cheap mortgages. Home loans have hit levels not seen since the financial crisis and the spectre of further hikes in the base rate is set to pile more misery on mortgage holders and wannabe homeowners alike at time when household budgets are reeling from the cost-of-living squeeze on finances. 

“Higher rates will have an immediate impact on those with variable rate mortgages linked to the Bank of England base rate, while those approaching the end of their deal are in for a nasty shock when it’s time to remortgage. The BoE says that 57% of fixed-rate mortgages in the UK due to mature in 2023 were fixed at interest rates below 2%. The average two-year fixed rate was 5.79% at the end of 2022, according to Moneyfacts, meaning that many of those approaching the end of their fixed-term deal could face paying hundreds of pounds more in monthly costs. 

“Younger borrowers, in particular, are more exposed to increases in mortgage rates as they are likely to stretch their budgets to get on to the property ladder. Bumper housing cost could cripple their financial resilience as the cost-of-living storm rages on.

“Private renters are also feeling the brunt. Higher rents have been accompanied by higher energy bills which continues to squeeze budgets. It is a tricky situation if you are looking for a new tenancy. Many renters could decide to remain in existing tenancy agreements with fixed rents, rather than risk a move and spend more on rent. Fast-rising rents could also keep some buyers in the hunt for a home for longer than they would like.” 

Key points

• More than 1.4 million households in the UK are facing the prospect of interest rate rises when they renew their fixed-rate mortgages this year. 
• 57% of fixed-rate mortgages in the UK coming up for renewal in 2023 were fixed at interest rates below 2%. 
• In the first quarter of this year, 353,000 fixed-rate mortgages will have to be renewed. ONS calculations, based on Bank of England transactions data, suggest that the number of fixed-rate mortgage deals coming to an end in 2023 will peak in Q2 2023 at 371,000. 
• Private renters are also facing an increase in their housing costs, with rental price growth in November 2022 at its highest rate in the UK since records began in 2016. 
• Renters spend almost a quarter (24%) of their median weekly expenditure on rent compared with mortgage holders who spend 16% of their median weekly expenditure on their mortgage repayments.