Mortgage payments in the UK are forecast to reach 4.25% of household disposable income by 2031, the highest share since 2009, according to the Office for Budget Responsibility. The forecaster expects outstanding mortgage debt to stay at around 85% of household disposable income throughout its forecast period, while the average effective interest rate on outstanding mortgages rises from 4% in 2026 to around 5% in 2031.

Why mortgage costs are rising

The OBR links the rise to an upward-sloping yield curve pushing up quoted mortgage rates, and to borrowers coming off deals fixed when rates were lower. The effective rate would still sit above the post-financial crisis average of 3%, but well below levels seen in the decades before 2008. Higher borrowing costs, alongside stagnating real incomes, are also holding back house price growth, which the OBR forecasts at around 2% in 2026 and 2.5% in 2027, below consumer price inflation.

Property transactions are expected to rise from around 1.2 million in 2026 to around 1.3 million in 2031, although that is 4% lower than the March forecast for the period. The OBR also expects house price growth to average 2.75% from 2028 onwards as real income growth recovers. For households, the figures underline a slow squeeze: monthly payments taking a larger slice of income even as price growth stays modest, with the heaviest pressure falling on borrowers refinancing from cheaper fixed deals. The forecasts were published alongside Chancellor John Healey's Budget on 28 October, and the OBR cautioned that the outlook remains sensitive to energy prices and interest rates.