A lot of the discussion over the past year has been about the cost-of-living crisis in terms of price inflation and energy bills. However, mortgage costs have also entered a vicious cycle. As prices rise, local central banks raises rates and your mortgage gets more expensive too.
In a note sent by Morgan Stanley yesterday (24th October 2022), analysts said UK mortgage repricing to around 6% rates, versus 2% rates in the back books is a significant reset for bank and borrowers.
Andrew Sheets, Morgan Stanley's chief cross-asset strategist, said that "Given short fixed-rate periods, 35% to 40% of UK mortgages may see higher rates in the next 12 months."
"With higher utility bills, a 6% mortgage rate could mean that 30% to 40% of UK households will struggle to pay their mortgage."
Morgan Stanley estimate that 30% of households with the lowest income make up 5% of UK lenders' mortgage books, although they also believe that mortgage underwriting was of significantly higher quality than pre-great financial crash.
"A new prime minister for the UK is incoming," said Sheets.
"But we think the fiscal course is already changed. A recession awaits, and we forecast the BoE to hike much less than market next year as growth slows."
First-time buyers have already seen the amount they can borrow dip by as much as 30% in the year-to-date. With interest rate repayments increasing, lenders have become more cautious as to what they will lend. Some internal analysis conducted by Hiten Ganatra, managing director of Visionary Finance, showed a drop in max lending between 24% and 30%. This means a £100,000 loan secured with the same level of income at the start of the year shrank to somewhere between £70,000 to £76,000.