Interest rate cuts will soften mortgage blow by £11bn – but Brits still face £19bn rise

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Bank of England interest rate cuts are set to soften the blow of increased mortgage payments in 2024, top economists have said.

Homeowners face a brighter-than-expected picture at the start of the year, as lenders begin to cut their rates – with some fixed-period deals now available at under 4 per cent.

Yet, Britons are still facing 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 forecast was relatively positive – given its previous warnings that the UK was facing a collective £30bn mortgage payment bombshell.

Goldman Sachs said it expects the Bank of England to start cutting the base rate from 5.25 per cent from May – meaning a quicker-than-expected fall in borrowing costs.

James Moberly, an economist at the investment bank, said the fall would mean “a cumulative increase in mortgage payments of £19bn by the end of 2025, notably lower than our previous estimate of roughly £30bn.”

The expert added: “The peak increase in mortgage payments is now likely to be reached in the first half of 2024, much sooner than we previously anticipated.”

The Resolution Foundation think tank has warned that up to 1.5 million households will have to re-mortgage in 2024 – with the average family set to pay an extra £1,800 a year.

The Bank Of England base rate cuts are expected to encourage lenders to offer better-than-expected deals, as economists offered more positive estimates at the start of the year.

The Bank’s monetary policy committee is scheduled to meet again on 1 February to make another decision on interest rates.

City analysts expect the Bank to start slashing rates in the spring, with some economists predicting they could fall as low as 3 per cent by the end of 2024, driving optimism in the market.

But Torsten Bell, the Resolution Foundation’s chief executive, said homeowners should bear in mind that many faced painful hikes – even if “the increase in people’s mortgage bills won’t be as painful as they would otherwise have been”.

HSBC has launched a headline-grabbing 3.94 per cent five-year fix, with Halifax, TSB and others also announcing cuts to mortgage interest rates. Halifax kickstarted 2024 by cutting its fixed rates by nearly 1 per cent.

The Moneyfacts website said on Thursday that the average rate for two-year fixed deal had fallen from 5.92 per cent to 5.87 per cent.

Nathan Emerson, chief executive at Propertymark said: “We would now hope that the Bank of England gradually starts slashing interest rates in order to further to stimulate growth in the housing market.”

Meanwhile, NatWest chair Sir Howard Davies raised eyebrows by claiming that it is “not that difficult” to get on the property ladder in the UK.

He made the claim on BBC Radio 4’s Today programme, leading presenter Amol Rajan to say: “To buy a house? In this country? Are we living in the same country, or are you reporting from overseas?”

Mortgage brokers lashed out at the NatWest chief – accusing him of failing to understand the pressure young, would-be first-time buyers are under. Stephen Perkins, managing director at Yellow Brick Mortgages, said Sir Howard “should be ashamed of these comments”.

He added: “It is tiring reading such comments from people who bought their first house for around £10,000 with a minimal deposit and a mortgage at two to three times their income and who are completely out of touch with the challenges first-time buyers face getting on the housing ladder.”

It comes as a leading lender said Britain’s housing market had “beat expectations” in 2023, with the average UK property value ending the year £4,800 higher than it had been at the end of 2022.

Property values increased by 1.7 per cent on average across 2023, Halifax said. Average house prices rose by 1.1 per cent month-on-month in December, the third monthly rise in a row.

The typical UK house price in December 2023 was just over £287,000, up from just over £282,000 in the same month a year earlier.