…By Henry George for TDPel Media.
London homeowners are in for a shock this year as thousands of borrowers with cheap fixed mortgage deals face higher rates when they come up for refinancing.
Over 100,000 fixed-rate loans secured on London homes are due to expire between now and the end of the year, forcing many to face significant increases in their housing costs.
Most of these loans are five and two-year deals taken out in 2018 and 2021 respectively, when mortgage rates were at an all-time low.
However, a series of rate rises by the Bank of England since December 2021 has increased fixed mortgage rates to an average of 5.28% for two-year deals and five per cent for five-year deals.
The Impact of Higher Mortgage Rates:
An analysis by the Evening Standard of data from UK Finance and the House of Commons library shows that this will force a significant number of homeowners to shoulder big increases in their housing costs, which could have a major impact on the London economy.
For the average London mortgage of £350,000, the monthly bill on a repayment loan with 20 years left to run will go up by £539 a month, from £1,770 to £2,309, or nearly £6,500 a year.
This will add around £675 million to the cost of servicing mortgages in London this year alone, with more increases likely to follow in 2024.
Tracker and variable rate mortgages will also become more expensive as the Bank of England continues to raise borrowing costs, bringing the total extra burden to around £700 million.
The average London homeowner will have to pay an additional £539 per month in housing costs, making it more difficult for them to make ends meet.
Reasons for the Increase:
Mortgage rates increased dramatically to well above six per cent in the aftermath of Kwasi Kwarteng’s disastrous mini-budget last September.
While they had been gradually decreasing, inflation failed to fall as fast as predicted in March, and it remained above the 10 per cent mark for the seventh month in a row.
The Bank of England’s monetary policy committee is expected to vote for another rate hike to 4.5% when it next meets on Thursday, with City markets pricing in at least one more rise to 4.75% over the summer and the strong possibility of another hike to 5% by August.
Impact on Londoners:
The report also revealed that a million Londoners are being forced to live on relatively low incomes due to the city’s sky-high housing costs.
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,” meaning they were living in households with income below 60% of the average that year.
Once housing costs are factored in, the figure rockets to 2.2 million, including 700,000 children, highlighting the impact of soaring rents and mortgages on London’s population.
Commentary:
The sharp increase in mortgage rates for London homeowners is likely to have a significant impact on the city’s economy, particularly as it coincides with a time of heightened economic uncertainty.
The additional cost of servicing mortgages will make it more challenging for Londoners to manage their finances and could lead to more household debt.
It is essential for homeowners to be proactive in seeking advice on what they can do to manage the situation. Overpaying and locking in rates six months in advance are some options to consider.
The report also highlights the high number of Londoners living on relatively low incomes due to high housing costs.
Addressing this issue will require a comprehensive approach that considers affordable housing solutions and policies to improve wage growth.