Scots hit with £2500-a-year average mortgage bills rise bombshell

The rise in interest rates has already hit the 129,000 households whose mortgages fluctuate with the Bank of England base rates such as standard variable and tracker loans.

It has also hit an estimated 120,000 households in Scotland whose fixed rate mortgages were due to expire last year and a further 70,000 whose deals were due to end in the first half of this year.

There are fears of a financial timebomb as it emerged that over 200,000 more Scots households are expected to see fixed-rate homeowner deals expire between now and the end of 2024.

According to estimates based on data from the banking and financial services trade association UK Finance, a further 70,000 Scots households are expected to be hit in the final half of this year when their fixed rate deals end and another 144,000 in 2024.

READ MORE: Record number of Scots children in temporary homeless accommodation

The next election must be held by January 28, 2025.

Housing campaigners say that the "shocking" increases in mortgage bills add more weight to calls to ensure that sufficient affordable homes are built in Scotland.

The financial services regulator said that they are consulting on putting an addition to its rules that insist that lenders provide tailored support to those in financial difficulty.

Nikhil Rathi, chief executive of the Financial Conduct Authority said that anyone in mortgage difficulty should speak to their lender early adding that that in itself would not affect people's credit score.

Ministers have been warned that a homelessness crisis will become deeper after it emerged social landlords in Scotland are expected to build 4,500 fewer affordable homes for some of the nation's most vulnerable than planned over the next five years.

Concerns have been raised about how the nation will deal with the housing emergency as the regulator has warned registered social landlords are projecting a 15% reduction in their plans to build new homes over the next five years as they seek to make spending cuts.

It has led to new concerns over a potential failure to meet a Scottish Government target over the provision of affordable homes. It comes as the number of new social sector housing building starts has slumped to a seven-year low, with 3665 due to begin in 2023, according to official figures.

Scotland's Housing Regulator says landlords are also planning to cut back or delay investment in existing homes with £15m cut from spending plans in some of the next five years.

Mortgages have been hit after the Bank of England hiked base rates to their highest level since 2008.

The central bank has been increasing interest rates since December, 2021 to try and control inflation, which unexpectedly fell in August to 6.7% despite a sharp rise in average fuel prices for motorists.

Last week, the Bank of England's Monetary Policy Committee decided to hold the benchmark interest rate at 5.25%. The move was a surprise to some analysts who were expecting another rise.

Before that interest rates had risen for a 14th consecutive time since December 2021, when the base rate sat at 0.1%.

The Bank’s aim in elevating interest rates has been to bring UK inflation down to its two per cent target.

According to new analysis supported by the financial information service Moneyfacts based on the typical household mortgage in Scotland with £100,000 of debt to pay off over 17 years, those on the standard variable rate will have seen their annual bills go up by nearly £2500 since interest rates started to go up in December, 2021. Monthly payments will have risen from £697.03 two years ago to £903.63 now with typical interest rates rising from 4.4% in December to 8.09% in September.

The same household on a typical two-year tracker mortgage will have seen annual repayments soar by nearly £2800 with monthly bills rising from £559.29 to £792.57 as interest rates rose from 1.58% to 6.17% over the same period.

A typical five-year fixed rate mortgage at 2.64% two years ago would result in repayments that are £2,310 more now with a similar deal now at 6.06%. Monthly payments would rise from £608.93 to £786.44.

For those on a typical two-year fixed rate mortgage the annual rise would be £2638.92. Monthly payments would rise from £594.61 to £814.52 as typical rates soared from 2.34% to 6.56%.

Earlier this year the Office for National Statistics (ONS) said that 57% of fixed rate mortgages coming up for renewal in 2023 had been set at rates below 2%.

It is appalling, say some groups,  that thousands of families in Scotland paying mortgages could be made homeless in the near future because of the large rise in mortgage interest rates.

The Scottish Tenants' Organisation said the "shocking" increase in the financial burden on homeowners showed how it was "imperative" that the Scottish Government intervenes to build thousands more affordable homes.

They said: "We already have the shameful equivalent of an Old Firm stadium crowd of 53,111 homeless people in Scotland and we need to ensure that we don’t add to that number by having the backstop of protection for people who lose their dream of home ownership.

Ruth Gilbert, national campaigns chair of housing campaigners Living Rent added: "Not only are fewer tenants able to escape the private rented sector,  but also there's a lack of social housing, rising costs for first-time buyers, and now homeowners are increasingly struggling with mortgage payments. The situation is getting more and more stressful for too many people. This might lead to more and more people being pushed into the private rented sector, which offers the least affordable and worst quality type of housing.

"Such risks demonstrate exactly why we need the government to regulate the private housing sector. We need proper rent controls which stop landlords' raking up rents and we need the government to properly fund council and social housing so we can all have secure and affordable homes."

It comes as nearly £900m was slashed from the amount being borrowed for mortgages from Scots wanting to join the property ladder for the first time as interest rates have soared and first-time buyers have slumped.

Scotland saw a 20% drop in the value of loans being given to first-time buyers whose numbers have slumped since interest rates began to soar in December, 2021 in the cost of living crisis.

The numbers joining the property ladder for the first time has slumped by 13% since 2021 from 8350 in the three months to December, 2021, when interest rates began to rise, to 7,210 in the three months to June this year.

Mr Rathi said that guidance which they are consulting on to make permanent in its rules will state that lenders should provide tailored support for those in financial difficulty.

He said it is suggested they "spend time understanding their circumstances, consider what options might be suitable for them, such as extending the mortgage term for a period, moving to interest only".

He said other options for lenders would be a "temporary period of forbearance if someone is between jobs and need time to get on their feet".

He added: "What we should remember from this period of rising interest rates compared to the 1990s is that we have a very different regulatory system in place now. Everyone who has obtained a mortgage has been through much more significant stress testing and affordability testing than may have been the case previously.

The Scottish Government's Programme for Government made a commitment to delivering 110,000 affordable homes by 2032 of which at least 70% was to be available for social rent. The commitment to build 110,000 affordable homes was made in the 2021 Programme for Government after the SNP and Greens signed a powersharing deal.

But a group of council chiefs and senior managers said that Scotland faces a "critical lack of capacity" in social housing.

The Society of Local Authority Chief Executives, in a July analysis, says that the supply of affordable homes has fallen 20% in three years and "shows no sign of recovering".

They say at least 125,000 homes for social rent were needed simply to satisfy existing demand.

Its July analysis revealed that 243,603 people are currently on the waiting list for social housing, but only 26,102 allocations were made across the entire country.

Housing minister Paul McLennan said: “Oversight and regulation of mortgage lenders is a reserved matter, and the Scottish Government has repeatedly called upon the UK Government to increase support for those most impacted by increasing inflation, interest rates and living costs.

“We recognise many homeowners are struggling with interest rates, and our Home Owners Support Fund offers support to low income households at risk of falling behind on their mortgages and facing repossession or eviction.

“Despite operating in the context of the UK Government’s disastrous mini-budget, Brexit, and over a decade of austerity and welfare cuts, Scotland continues to lead the way in housebuilding in the UK.

“Scotland has led the UK in providing affordable housing. Since 2007, we have delivered over 40% more affordable homes per head of population than in England, and over 70% more than in Wales. We have already delivered 13,354 homes towards our next target of 110,000 affordable homes in Scotland by 2032.”