Looming ‘Mortgage Shock’ as payments near half of UK consumer’s income
The average mortgage applicant could face paying up to £1,400 a month on average, a 40% spike from just over a year ago
More than 70% of open mortgages are currently on a fixed-rate deal
Over 375,000 mortgages will come to the end of their five-year fixed-rate deals in the six months from May to October 2023
Today, 7.7 million of the 10.7 million currently open mortgages are on a fixed-rates, Equifax analysis has revealed (1). Over 375,000 of these fixed-rate mortgages are due to come to the end of their five-year period in the six months between May and October 2023; the majority of which have an average outstanding balance of £170,000. This will mean an average increase in monthly repayments of around £300 if customers revert to a variable rate.
In the past 18 months, many homeowners have avoided a significant increase in their monthly repayments due to fixed-rate deals, even as the Bank of England has undertaken record base rate increases, rising from 0.25% to 4.5%. However, with fixed-rate mortgage offers currently hovering around 5%, consumers will be faced with substantial increases in monthly expenditures amid already constrained pay growth and persistently high inflation.
For those entering the housing market, average monthly repayments have increased by 40%. The average mortgage applicant at the end of 2021 would pay around £1,000 a month, whereas now they could pay up to £1,400. Considering that the average monthly income in the UK is £2,560 (2), mortgage payments will likely take up over 50% of people’s monthly income, whilst households try to manage skyrocketing bills and turbulent interest rates.
Paul Heywood, Chief Data & Analytics Officer at Equifax UK, said: “There is a risk that some consumers could become mortgage prisoners with the current state of rates. Amongst these consumers, we expect to see a gradual increase in missed payments. Diminishing affordability levels may also restrict or even stall growth in house prices, perhaps leading to a correction in the housing market.
“The starting point for lenders and credit providers is to understand which of their customers are most likely to be impacted by rising mortgage rates, what the extent of that rise is likely to be, and the likely timing of that impact.
“Through Open Banking analysis, we can support lenders to anticipate such changes and act accordingly in the face of the looming mortgage shock, by analysing customer affordability, amongst other factors. We can also help limit lending to over-indebted consumers and provide support on how to roll this out.”
Equifax has used analysis from their core insight database, coupled with primary research into consumer behaviour based on Open Banking, to explore the extent to which UK consumers face a further impact on their finances due to the looming mortgage shock Further findings are detailed in Equifax’s Mortgage Shock report.
Notes to editors:
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Equifax Ltd is one of the Equifax group companies based in the UK. Equifax Ltd is authorised and regulated by the Financial Conduct Authority. For more information, visit equifax.co.uk and follow the company’s news on LinkedIn.
For more information regarding the Mortgage Shock Report, please click here.