Interest rate rises could see 1.4 million mortgage holders lose at least a fifth of their disposable income, according to the Institute for Fiscal Studies (IFS).
On Thursday, the Bank of England is expected to raise the base rate for the 13th time in a row, having already increased it from 0.1% in December 2021 to 4.5%, where it currently stands.
Figures released by the Office for National Statistics (ONS) on Wednesday showed that inflation remains stubbornly high.
A report by the IFS said that, in March 2022, households with a mortgage were spending an average of £670 per month on mortgage payments, £230 of which was interest.
For some the rise will be substantially larger: almost 1.4 million - 690,000 of whom are under 40 - will see their disposable incomes fall by over 20%— IFS report
On average, those in mortgage-holding households face paying nearly £280 more each month, with 30 to 39-year-olds paying nearly £360 more, the IFS said.
The report continued: “This will be a significant hit to mortgagors’ disposable incomes (incomes after mortgage payments) at a time that families are already under strain – on average disposable incomes will fall by 8.3%, with those aged 30-39 again seeing the biggest hit (almost 11%).
“For some the rise will be substantially larger: almost 1.4 million – 690,000 of whom are under 40 – will see their disposable incomes fall by over 20%.”
Those in London will face the largest hits, with mortgage payments rising by around 12% of disposable income on average, the IFS said.
Mortgagors in Northern Ireland are the least exposed, losing around 5.3% of disposable income typically, according to the IFS.
For many, the increase in monthly repayments is going to come as a serious shock— Tom Wernham, IFS
Tom Wernham, a research economist at IFS and an author of the report, said: “Many families bought homes – often with sizable mortgages – when interest rates were very low.
“As people’s fixed-term offers come to an end, they are going to be exposed to much higher interest rates.
“For many, the increase in monthly repayments is going to come as a serious shock – on average it will be equivalent to seeing their disposable income fall by around 8.3%.
“And for 1.4 million mortgage holders – half of whom are under 40 – mortgage payments are set to rise by an eyewatering 20% of disposable income or more.
“Given the cost-of-living pressures people are already facing due to high food and energy price inflation, these significant increases in mortgage costs could not come at a worse time.”
Struggling homeowners are facing savage cuts to their incomes as mortgage rates go through the roof— Liberal Democrat Treasury spokeswoman Sarah Olney
Shadow chief secretary to the Treasury Pat McFadden said: “With inflation staying high and these new warnings that the Tory mortgage penalty will continue to painfully squeeze family finances, it’s clear this Government can’t fix these problems because they are the problem.”
The Labour MP added: “Instead of squabbling over peerages and parties and ruling out any action on mortgages, the Tories should be taking responsibility and acting now.”
Liberal Democrat Treasury spokeswoman Sarah Olney said: “These stark figures show struggling homeowners are facing savage cuts to their incomes as mortgage rates go through the roof.”
Speaking in Parliament, Chancellor Jeremy Hunt said: “We will not hesitate in our resolve to support the Bank of England as it seeks to strangle the inflation in the economy – and the best policy is to stick to our plan to halve it.
“But I also want to make sure we do everything possible to help families paying higher mortgage rates in ways that do not themselves feed inflation.
“So later this week I will be meeting the principal mortgage lenders to ask what help they can give to people struggling to pay for more expensive mortgages and what flexibilities might be possible for families in arrears.”
