The volatility in the UK mortgage market has yet again intensified as major banks swiftly withdraw their mortgage offerings, creating more uncertainty for potential homebuyers and homeowners alike. April’s higher-than-expected inflation reading has unsettled the recent steady falls in fixed mortgage rates, highlighting affordability as the primary concern for the housing market. With the Bank of England now more likely to raise rates even higher than previously thought, Cebr expects the 2-year (75% LTV) mortgage rate to tick up and average 5.1% in 2023.

Given the wider economic significance of recent housing market shifts, Cebr has analysed the impact of rising mortgage rates across the UK’s regions. To do this, we have used ONS estimates of mortgages that have been or are due to be renegotiated over 2023 and 2024, which is estimated at around 2.5 million. This segment of households will be forcibly exposed to the recent rise in rates, on top of the estimated 1.0 million already exposed due to their variable rate deals.

Our calculations estimate that the number of ‘refixers’ (those renegotiating onto 2-year or 5-year fixed rate deals) will be distributed in line with the share of households with mortgages in each region and nation of the UK. We then calculate the cost of mortgages before refixing, using average house prices and data on interest rates, and compare this with the cost of such mortgages now that rates have risen by up to 3.5 percentage points for some households. This allows us to show the regional impact of higher rates, based on local house prices and the proportion of households with a mortgage in each region in the UK.

Our computations assume 28% of refixers will renegotiate onto a 2-year fixed, while the rest will lock into five years, in line with recent data from the Bank of England which show a marked increase in the appetite for 5-year deals over the past six years.

In aggregate, and in line with our expectation that mortgage rates will average 5.1% in 2023 and 4.6% in 2024, Cebr estimates that mortgage holders looking to renegotiate their deal in the next two years will face a hefty £8.7 billion increase in their payments as a direct result of tighter monetary policy.

London will see the largest rise in aggregate cost for refixers, with mortgage costs up by £1.8 billion over 2023 and 2024, a symptom of the £530,000 average price for a home in the capital compared to the UK average of £282,000. Meanwhile, refixers in the South East will see the next highest rise in payments, up £1.7 billion in 2023. This is partly due to the higher-than-average house prices but also down to the fact that the region held the largest share of all mortgages in the UK in 2022, at 15%.  

London and the South East also show the highest affordability ratios when comparing house prices to gross annual earnings. Indeed, the latest ONS data show average house prices in London were 12 times higher than annual earnings, while this was 11 times higher in the South East. This stresses affordability concerns for those with a mortgage even in the country’s more affluent regions.  

At the other end of the scale, Northern Ireland and the North East are expected to see the lowest increase in mortgage payments for those due to refix up to the end of 2024. Cebr estimates refixers in Northern Ireland will see a £126 million increase in mortgage costs, while in the North East this increase will amount to £159 million.

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.

Benjamin Trevis is an economist at the CEBR.

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