Are homeowners right to feel brighter this year?

Three quarters (77%) of the population saw an increase in their regular outgoings over the past year, according to findings from our recent consumer survey. In contrast, just over half (54%) of respondents had an increase in their salary, which suggests that the burden of costs outweighing income remains for most. In total, across the 2,500 people surveyed, the increase in outgoings was 18%, three times higher than the 6% increase in income. 

Despite this, the findings of our survey suggest we have reached a plateau. Looking at savings, for example, the share of people who expect to make regular savings this year is just over 70%, broadly similar to last year. Over half of those saving plan to use some of the funds for residential property. A third are saving for a deposit, and a further 20% for an investment property or second home. 

But for some, their plans are being pushed back. 9% of respondents stated they had planned to purchase a new home this year but have now changed their mind. While for many the deposit may be an issue, the other driving factor remains the cost of the mortgage, which has been steadily rising the last few years. For those that currently own a property, the survey showed that in the last year, the average mortgage payment has increased from £668.51 to £748.94, or 12%. 

A large share of the homeowners we surveyed (40%) will be remortgaging at some point over this year. Over half of these respondents expect their monthly payment to stay the same or decrease. Although mortgage rates are likely on the way down this year, the outlook still seems somewhat overly optimistic. Anyone nearing the end of a five-year fixed rate mortgage, for example, will be going from a mortgage rate of around 2% to 4%. For a £250,000 loan, this would add about £250 to the monthly payment. 

However, for those coming off a two-year fixed rate, the news is more positive. In 2022, interest rates began their upward cycle, so while those fixing at the start of the year were on relatively low rates (of around 1.85%), by Q4, two-year fixed rates were averaging 5.8%. In contrast, this year we are expecting mortgage rates to fall from around 4.75% to 4.1%. The difference between the current mortgage rate and the expected refinance rate will shrink throughout the year. By the fourth quarter, those coming to the end of their fixed term will be on a lower rate than their current one. Our estimates suggest that for every £100,000 loan, this cohort will save around £100 per month. 

For some, the optimism is warranted, and this is starting to feed through to sentiment. While 38% of respondents feel worse about their personal finances than they did last year, positively, 62% either feel better or the same. This is likely to improve as the rate of inflation continues to fall and the cycle of interest rates loosening begins. 

Figure 1: A comparison of two-year fixed rates for those coming to the end of the term over the next two years

Source: CBRE Research