An analysis by the Resolution Foundation think tank said nearly a fifth of British households would have to spend more on their housing costs by the end of 2024. Almost half of borrowers were on course to see their family budgets fall by at least 5% due to higher housing costs, which meant the “living standards pain from rising interest rates will be widespread”.
More than five million families could see their annual mortgage payments rise by an average of £5,100 between now and the end of 2024, heaping fresh pain on households already struggling with higher food and energy bills.
It said that approximately £1,200 of that £5,100 figure was due to expectations that interest rates would rise more quickly than previously thought because of the upheaval in the financial markets caused by the government’s disastrous mini-budget.
Lindsay Judge, the think tank’s research director, explained, “Households across Britain are currently living through an inflation-driven cost of living crisis as pay packets shrink and energy bills rise.”
Interest rates started the year at 0.25% the Bank of England is expected to push them up to more than 5% by early next year. After hovering around 2% for several years, mortgage rates have shot up. The average two-year fixed mortgage reached 6.47% on Friday. Experts predict homeowners will struggle to make mortgage repayments, leading to rising repossessions in 2023.
The Resolution Foundation said that while 1.2m households with variable rate mortgages would see their housing costs rise swiftly in line with the changes to the base rate, the impact on the 85% of homeowners on a fixed-rate deal would build over the coming years as they moved on to new deals. Mortgage payments for 1.7m households would increase between now and the end of this year. A further 400,000 households would have to start paying more in early 2023. By the end of 2024, 5.1 million borrowers – close to one-fifth of all households in Britain – will be spending more on their housing costs.
Borrowers in London would be hit hardest, with average payments set to rise by £8,000 over this period, more than twice the level of the £3,400 increase in Wales. Although higher-income households will face the biggest increases in mortgage costs in cash terms on average, the report said that it would be lower-income families with mortgages who faced the biggest increase as a share of their income.
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