The Bank of England’s interest rate cuts will soften the blow of rising mortgage payments in 2024, leading economists have said.
Homeowners face a better-than-expected outlook at the start of the year as lenders begin to reduce their rates, with some fixed-period deals now available for below 4 per cent.
However, Britons still face a £19bn increase in higher mortgage costs between now and the end of 2025 as current deals expire, according to experts at Goldman Sachs.
The investment giant said the outlook was relatively positive, given its previous warnings that the UK was facing a collective £30bn mortgage repayment bomb.
Goldman Sachs said it expects the Bank of England to start cutting the base rate from 5.25 percent from May, meaning a faster-than-expected fall in borrowing costs.
James Moberly, an economist at the investment bank, said the fall would mean “a cumulative rise in mortgage payments of £19bn by the end of 2025, notably less than our previous estimate of around £30bn”.
The expert added: “The maximum increase in mortgage payments is now likely to be reached in the first half of 2024, much sooner than we anticipated.”
The Resolution Foundation think tank has warned that up to 1.5 million homes will have to remortgage by 2024, with the average family paying an extra £1,800 a year.
The Bank of England’s base rate cuts are expected to encourage lenders to offer better-than-expected deals, as economists offered more positive estimates earlier in the year.
The Bank’s monetary policy committee is scheduled to meet again on February 1 to make another decision on interest rates.
City analysts expect the Bank to begin cutting rates in the spring, and some economists predict they could fall as low as 3 percent by the end of 2024, sparking market optimism.
But Torsten Bell, chief executive of the Resolution Foundation, said homeowners should be aware that many face painful increases, even if “the increase in people’s mortgage bills won’t be as painful as they otherwise would have been.” mode”.
HSBC has launched a headline-grabbing 3.94 per cent five-year fix, and Halifax, TSB and others have also announced cuts to mortgage rates. Halifax started 2024 by cutting its fixed rates by almost 1 per cent.
Website Moneyfacts said on Thursday the average rate for two-year fixed deals had fallen from 5.92 per cent to 5.87 per cent.
Nathan Emerson, chief executive of Propertymark, said: “We now expect the Bank of England to gradually begin cutting interest rates to further stimulate growth in the property market.”
Meanwhile, NatWest chairman Sir Howard Davies raised eyebrows by claiming that it is “not that difficult” to move up the property ladder in the UK.
He made the claim on BBC Radio 4. Today show, host Amol Rajan said, “Buying a house? In this country? Do we live in the same country or are you reporting from abroad?
Mortgage brokers have hit out at the head of NatWest, accusing him of failing to understand the pressure young aspiring first-time buyers are under. Stephen Perkins, managing director of Yellow Brick Mortgages, said Sir Howard “should be ashamed of these comments”.
He added: “It is exhausting to read comments from these types of people who bought their first home for around £10,000 with a minimum deposit and a mortgage of two to three times their income and who are completely out of touch with the challenges faced by first time buyers. “climbing the housing ladder.”
It comes as a major lender said the British housing market had “exceeded expectations” in 2023, with the average UK property value at the end of the year £4,800 higher than at the end of 2022.
Property values increased 1.7 per cent on average during 2023, Halifax said. Median house prices rose 1.1 percent month-on-month in December, the third consecutive monthly increase.
The typical UK house price in December 2023 was just over £287,000, down from just over £282,000 in the same month a year earlier.