UK Housing Market: Mortgage Borrowers More Vulnerable Than Renters

High interest rates have shifted the balance of household spending

Homeowners with mortgages in the UK have faced stronger financial pressure than renters, Bloomberg reports, citing data from the Office for National Statistics (ONS). Since the beginning of 2022, their total household costs have risen by 29%, the highest increase among all groups, while private renters are paying 24% more.

Mortgages in Britain: the sharpest increase

The ONS household cost index reflects differences in spending structures across groups. For mortgaged homeowners, the calculation includes monthly loan repayments, stamp duty and other housing-related purchase costs. This component drove total expenses up by 29% since early 2022 — the largest increase among all categories. For private renters, the rise was 24%.

UK Finance data show that pressure on borrowers has intensified but has not yet turned into a systemic crisis. In the third quarter of 2025, there were 84,100 mortgages in arrears of 2.5% or more of the outstanding balance, down 4% compared with April–June. Such loans account for around 0.97% of the total mortgage book. In the buy-to-let segment, the share is lower, at approximately 0.54%. The Financial Conduct Authority (FCA) notes that the total value of mortgages in arrears declined to £20.6 billion, down 2.9% quarter-on-quarter and 5.8% year-on-year.

The number of properties repossessed by lenders has increased compared with previous periods, though it remains significantly below levels seen after the 2008–2009 financial crisis.

Drivers of change: the UK base rate

The trend is directly linked to borrowing costs. After the pandemic, the Bank of England sharply raised its base rate to combat inflation, pushing it well above levels seen during the previous decade. The regulator has since cut the rate six times, but it remains at 3.75%, continuing to support elevated mortgage costs.

According to Moneyfacts, the average two-year fixed mortgage rate stands at 4.83%. This is more than double the levels typical before the tightening cycle began. As earlier fixed-rate deals expired, millions of households moved onto new terms, leading to higher monthly repayments and increased pressure on family budgets.

UK rental market: temporary cooling

In the private rental sector, growth has slowed in recent months. Over the 12 months to January, rents increased by 3.5% — the weakest rise since early 2022. In London, annual growth was 1.1%, while month-on-month rents fell by 0.7%, the largest decline since comparable records began in 2015.

Official ONS data show that the average private rent in the UK reached £1,368 per month as of December 2025. Rents were 4% higher than a year earlier, significantly below the pace seen in previous years. In England, rents rose by 3.9%, in Wales by 5.7%, and in Scotland by 2.8%. London also recorded a monthly drop of 0.7%, the sharpest decline since consistent data collection began.

Outlook for the UK rental market

The rental market previously experienced significant pressure due to limited supply. A shortage of available properties combined with strong demand pushed rents upward. Current data suggest temporary cooling, though experts expect the trend to shift.

Capital Economics economist Ashley Webb forecasts an acceleration in market rent growth in the coming years. A new tax on landlords announced in the November Budget is expected to tighten supply. Rent growth could rise from 2.2% at the end of last year to 2.8% in 2026 and approach 4.0% in 2027.

Rightmove reports that the average advertised rent at the end of 2025 was 2.2% higher than a year earlier. At the same time, the number of available rental properties increased by around 9%, and competition among tenants eased. The company expects moderate rent growth of about 2% in 2026. This points to stabilisation in the rental segment after a period of sharp increases, in contrast to the more pronounced rise in costs in the mortgage sector.

Implications for the UK housing market

Analysts at International Investment note that the public debate around a “rental crisis” does not fully capture the scale of financial pressure within the housing sector. The most significant cost increases have affected mortgaged homeowners, whose budgets are directly exposed to borrowing costs.

Even after six rate cuts, the base rate remains well above pre-pandemic levels, limiting the pace of mortgage repricing. For households that refinanced in 2024–2025, this has meant locking in higher monthly obligations for several years ahead.

The divergence in cost dynamics between mortgage borrowers and renters influences consumer spending and savings patterns. Higher debt servicing reduces disposable income and increases sensitivity to changes in inflation and interest rate policy.

The future trajectory of the UK housing market will depend on Bank of England decisions and the pace of inflation slowdown. Persistently elevated rates will continue to weigh on the mortgage segment, while a renewed acceleration in rents could alter the current balance between the two groups of households.