Mortgage costs expected to grow by another £2,500 as inflation spirals

The cost of a mortgage is expected to grow by another £2,500 by the end of this year, in comparison with December 2021, according to property site Zoopla today.

Economists anticipate “sharp” hikes to mortgage rates in the coming months, as the Bank of England seeks to tame spiralling inflation, which is already at 9.1 per cent – a 40-year high.

Households are also struggling amid an affordability crisis sweeping the UK, which Zoopla confirmed is having a ‘knock-on’ effect on the cost of borrowing.

“Homeowners on fixed rate mortgages are sheltered from current rate rises, but prospective buyers are facing higher mortgage rates than six months ago. Buyer demand remains strong in the London market despite these increases, but it is starting to ease from record high levels seen earlier this year,” Grainne Gilmore, head of research at Zoopla, told City A.M.

Buyers currently face average rates of 3.37 per cent for a five-year fixed-rate home loan, compared to 2.64 per cent in December on a £250,000 loan, including a 25 per cent deposit.

The rates rise over the six-month period is the equivalent of more than £870, which Zoopla has forecast to swell to £2,500 in extra costs should rates rise by another basis point.

Should the Bank of England hike rates again, taking them to around 4.62 per cent – borrowing for a home will hit levels last seen in April 2010, when the average house price was £168,719 as opposed to the £271,613 it is today, according to the Nationwide House Price Index published yesterday.

The more than £100,000 price leap, over 12-years, is the product of a booming housing market in the UK, spurred most recently by a combination of pandemic-era factors such as a race for space during lockdown measures, as well as the stamp duty holiday.

However, house price growth has been slowing since the beginning of the year – despite continuing to reach new heights.

UK house prices grew 11.2 per cent in May and 10.7 per cent in June, marking what onlookers say is an affordability driven slowdown amid the cost of living crisis in the country.

“There are tentative signs of a slowdown, with the number of mortgages approved for house purchases falling back towards pre-pandemic levels in April and surveyors reporting some softening in new buyer enquiries,” Nationwide’s chief economist Robert Gardner said yesterday.

“The market is expected to slow further as pressure on household finances intensifies in the coming quarters, with inflation expected to reach double digits towards the end of the year. Moreover, the Bank of England is widely expected to raise interest rates further, which will also exert a cooling impact on the market if this feeds through to mortgage rates.”