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Goldman Sachs has just published a new report on the UK mortgage market and monetary policy. If you didn’t snag a five-year fixed rate deal in mid-2021 then look away now.
The unsurprising TL;DR is that mortgage costs have rocketed lately, and since Brits have relatively short-term mortgages, this is going to hurt, individually and for the economy.
The good news is that because many people did sign up short-term fixed-rate mortgages deals in recent years, the effective rate on the overall £1.7tn UK residential mortgage market will still ‘only’ rise to 4.6 per cent by the end of 2024, up from 2.1 per cent in mid-2021.
So things would have been far worse a decade ago, when about 70 per cent of UK mortgages were floating rate.
The bad news is that the slow and uneven transmission mechanism this leads to means that the Bank of England will probably lift rates even higher than previously thought — to 6 per cent by next year, according to Goldman (markets fear it could go as high as 6.5 per cent, while JPMorgan said last week that 7 per cent looks a realistic possibility). In other words if you didn’t refinance and lock in a low rate in the salad days, you’re basically the sacrificial lamb offered up by the BoE to tame inflation.
And even the 4.6 per cent effective rate will translate into an extra £32bn increase in mortgage payments by 2024, as lower principal repayments and (to a far lesser extent) longer repayment plans slightly blunts the direct pain of higher rates feeding through.
This will translate into a drag on economic growth of about 0.6 percentage point by next year, Goldman Sachs economist James Moberly estimates, even before any second-round effects. You can read the whole cheery thing here.
Further reading:
— Andrew Bailey vs the renters?
— Britain, land of the eternal mortgage
— So long, and thanks for all the fixed-rate mortgages?
