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More pain for mortgage holders

A think tank has warned that most of the mortgage pain is yet to come, with two-thirds of the increases in mortgage rates still to be passed on. The Resolution Foundation has said that although the Bank of England is nearing the end of its seemingly relentless drive to increase interest rates, mortgage holders will suffer for much longer.

A think tank has warned that most of the mortgage pain is yet to come, with two-thirds of the increases in mortgage rates still to be passed on.

The Resolution Foundation has said that although the Bank of England is nearing the end of its seemingly relentless drive to increase interest rates, mortgage holders will suffer for much longer.

Just last week the Bank raised rates to 4.5 per cent but there is a feeling that they won’t get above five per cent.

However, many home-owners are still to come off very low fixed rate deals and will be hit by much higher repayments.

The Foundation Resolution says that there is still £12bn of pain to be passed on.

Before the 2008 financial crisis just 40 per cent of loans were for fixed rate mortgage deals. By last year that had risen to 90 per cent.

All these home-owners will see their mortgage costs shoot up when their fixed rate deals end and they look for a new deal.

The think tank also noted that not only were fixed terms more popular, but the terms have become longer; five year fixes are now more common than two year ones.

While mortgage rates have increased quickly, experts believe that when they come down, they will do so more slowly. This will extend the length of time people will feel the pain.

Simon Pittaway, senior economist at the Resolution Foundation, said: “Last Thursday, the Bank of England raised interest rates for the twelfth time in a row, but also indicated that the sharpest rate-rising cycle since the 1980s is nearly at an end.

“But while interest rate rises might be coming to an end, there will be plenty more mortgage pain to come. Two thirds of the £12bn a year increase in mortgage costs that British households face as a result of rising rates is still to come.

“People moving onto new fixed-rate deals over the next year can expect to see their annual mortgage costs rise by an eye-watering £2,300 – with young families and low-and-middle-income households with mortgages facing the biggest living standards hits.”

Mike Bradley, a senior broker at Home Owners Advice, said: “The impact for those coming off very low fixed deals will be a big one.

Mortgage rates have gone up, but are probably now at a more long term realistic level – but this won’t help those struggling.

“We think rates will come down later in the year and the difficulties can be further alleviated if inflation goes back down and the tax burden is reduced.”



Author: ED Oliver


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