Tanya McWaters, a 30-year-old television production manager, and her husband may have managed to buy right at the peak of the housing market. Like others their age the couple used their savings, as well as a little money from her parents—and, in their case, emptying his Australian pension pot—to cobble together the money for a deposit. They moved from a rented flat in London into a house in Bicester, near Oxford, last April. “I love it,” she says. “[The mortgage bill] was the same as our rent for the one-bed in London.”
Listen to this story.
Enjoy more audio and podcasts on iOS or Android.
Your browser does not support the <audio> element.
Save time by listening to our audio articles as you multitask
Not for much longer. Having taken out a one-year fixed-rate mortgage as “the economy was so confusing at the time”, they now face a steep rise in their housing costs. Even the best deals on offer would see the couple’s monthly housing bill increase by £300 ($370), over 25% more than they pay now. “It’s a bit grim,” she says.
According to data from the Office for National Statistics (ONS), over 1.4m fixed-rate mortgages will come to an end this year. Nearly all of these mortgages have an interest rate of less than 2.5%; new two-year fixed-rate mortgages will typically cost more than double that, at about 6%. The average variable-rate mortgage, which tracks the Bank of England’s base rate, is about 4.4% and will rise further as the central bank tightens monetary policy. Heftier mortgage bills will be painful. The big question for the economy is whether they signal something really ominous.
As in many other countries, housing transactions surged in Britain during the covid-19 pandemic. Low interest rates, a temporary pause in stamp duty on some property sales and the spread of working from home combined to fuel a dash for space. First-time buyers were enthusiastic participants in the market, accounting for more than half of all new mortgages during the pandemic. Between March 2020 and November 2022, the average cost of a house rose by a quarter, from £233,000 to £295,000, according to official statistics.
That surge in house prices is now firmly in reverse. “There is a big hit to affordability from higher interest rates,” points out Andrew Burrell, a property economist at Capital Economics, a consultancy, which is forecasting a peak-to-trough fall of 12% in house prices. Savills, an estate agent, predicts that house prices will fall by 10% this year, the steepest drop in prices …….