UK renters bear the brunt of rising home prices

The extent to which UK fixed-rate mortgage homeowners have been shielded from rising home values ​​over the past decade compared to renters is highlighted in a new study that warns of tough refinancing terms in the coming months.

Mortgage-occupied homeowners found that their annual housing costs rose 26 percent in the 10 years to the end of 2022, compared to a 36 percent jump in rents for renters.

Mortgage annual interest rates have fallen 19% to £29bn in the decade to 2022, but capital repayment costs have risen 77% to £55bn, according to research by estate agent Savills. While interest rates have been at ultra-low levels for much of the past decade, UK house prices have skyrocketed and interest-paying mortgages have been less common than capital repayment loans.

Focusing on 2022, the researchers found that private sector, social and affordable housing tenants paid £93.4bn in rent compared to £84.3bn in owner-tenant mortgage costs. The average cost of a mortgage for the year was £10,060 compared to an average private sector annual rent of £11,689.

Those with fixed-rate mortgages experienced a 1.3 percent rise in home values ​​between 2021 and 2022, while those with floating-rate mortgages saw a sharp rise of 50.2 percent.

Chart showing annual labor costs in the UK over the last 10 years

Lucian Cook, director of housing research at Savills, said: “This shows the extent to which fixed-rate mortgages have insulated homeowners from rising home values. We know that the increase in the cost of mortgages has not taken place in full due to the large number of people who entered into fixed rate deals.”

Interest rates on fixed-deal mortgages hit around 6 percent in October 2022 after the Bank of England’s rate hike and September’s ‘mini budget’ turmoil. They have since retreated to around 4%, but remains well above the 1-2% deals offered in 2021.

Many borrowers are now facing a payoff as they want to refinance a fixed-rate deal at these higher rates.

Financial Supervisory Authority last week said by June 2022, about 200,000 mortgages had not paid off, and another 45,000 were “financially exhausted,” meaning their monthly mortgage payments exceeded 30 percent of family income. The latter group is expected to grow to 356,000 by June 2024.

In terms of rent, pressure on tenants was highlighted by real estate website Rightmove’s survey on Friday, which found that 42% of renters in 10 major UK cities have contacted letting agents in cheaper areas on or off the periphery. from 28 percent in February 2020. Rightmove said the reason for the exodus was rising rents, an increase in the cost of living, and a lack of affordable homes to move in.

The median rent required by landlords for downtown homes is up 12% year-over-year, while demand has more than doubled to 125% since February 2020. London led the way in cities where tenants wanted to move on. from and then Sheffield and Manchester.

Sarah Bush, head of leasing at the Cheffins real estate agency in Cambridge, said that as rents rose, tenants were keen to rent out what they could afford rather than reaching for property in the right location. “Families who need to rent a three- or four-bedroom property are often forced to turn to rustic properties simply to get the space they need at an affordable price.”

this week Budget there was little to offer tenants, first-time buyers, or mortgaged property owners struggling with higher home prices. Office of Budgetary Responsibility forecast that by the end of this year inflation will fall to 2.9 percent, which could lead to further easing of interest rates for mortgage borrowers. But demand for mortgage refinancing will peak in the next two quarters.

“In 2023, there will be further increases in house prices,” Cook said. “This means housing affordability is likely to become more of a political issue as we get closer to the next general election.”

The Savills study combined data from official sources, including the Office for National Statistics, the Bank of England, the English Housing Survey and the 2021 Census. It considered mortgage capital, interest, and rent as major components of home value, but did not include utility bills, taxes, or other payments.