First-time buyers facing doubled lifetime interest costs
interest rate hikes

Rate hikes leave first-time buyers facing doubled lifetime interest costs

New data has shown that recent first-time buyers now face more than doubled lifetime interest costs due to soaring interest rates. According to reports, total lifetime costs have surged to record highs, which spells bad news for new homeowners and those looking to get onto the property ladder.

The data comes from the think tank, the Resolution Foundation. Officials from the foundation said that the spate of rate hikes had enormous repercussions for first-time buyers regarding the amount of interest they would have to pay. However, they also noted that expected house price falls could help ease the situation somewhat.

rate hike

Looking at lifetime costs for recent and aspiring homeowners

As part of its research, the think tank looked at lifetime mortgage costs for both recent and aspiring homeowners in light of the rate increases seen since last December. The report also considered the impact of falling house prices as the property market cools.

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It is thought that by the end of 2024, more than five million mortgage holders will be affected by higher interest rates. The most significant impact will be on younger homeowners, who will be in the earlier stages of their mortgage terms when a more substantial part of their payments is the interest.

Many recent homeowners are in for a huge financial shock, particularly those who purchased their homes when interest rates were at an all-time low late last year. Since then, there has been a series of base rate increases, including the most recent 0.75% hike.

UK rate hike

This means those who took a variable rate mortgage will see their payments increase in line with the base rate hikes, which could mean paying thousands of pounds more a year in repayments. Likewise, those who move onto new fixed-rate deals and those whose current fixed rates are due to end will face massive repayment shocks.

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Sophie Hale, the principal economist at the Resolution Foundation, said: “Rising interest rates are particularly bad news for recent first-time buyers, with their lifetime interest costs more than doubling. Alongside higher mortgage costs, young homeowners are also in particular danger of low or negative equity as a result of falling house prices.”

She added: “The flip side is that falling house prices and higher returns on savings could lower barriers to home ownership for the next generation of first-time buyers, by making it easier for them to come up with a deposit on their first home.”

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The analysis from the think tank showed that many younger homeowners could end up paying additional mortgage costs of £3,700 a year by the end of 2026 based on interest rate expectations. This could result in the lifetime interest on mortgages increasing from £67,000 to £145,000.