Millions of households face a mortgage hike of £2,300 a year
Around 3.75 million households are yet to feel the impact of rising mortgage rates because they are still on cheap fixed deals
Millions of households face a total £12 billion increase to their mortgage bills and should expect “more mortgage pain”, a think tank has warned.
An estimated 3.75 million households are yet to face the impact of rising mortgage rates as they are still on cheap fixed deals, according to the Resolution Foundation.
These borrowers could see their annual payments rise by an average of £2,300 a year after 12 consecutive rises to the Bank of England’s base rate since December 2021. Last week the central bank raised interest rates to 4.5%, the highest level in 15 years.
It means the average mortgage holder could see their monthly interest payments jump by around £200 a month if they fixed to a new rate this year.
The trend towards homeowners taking out longer fixed-rate mortgages has delayed the impact on some households, with two-thirds of the eventual £12 billion increase in annual mortgage costs still to be passed on, the foundation said.
Richer households, which are more likely to be mortgaged than poorer homes and tend to be more expensive properties, will face the majority of the £12 billion rise in mortgage costs.
But the foundation also predicted that the scale of the living standards shock will be particularly high for those low and middle-income households who are affected.
Younger home-owning families, who tend to have lower incomes than older households and higher mortgages relative to incomes, will also face a sharp living standards hit, the foundation said.
Simon Pittaway, senior economist at the Resolution Foundation, said: “While interest rate rises might be coming to an end, there will be plenty more mortgage pain to come.”
Pat McFadden, shadow chief secretary to the Treasury, said the report “demonstrates how last autumn’s Tory Budget continues to make Britain’s mortgage holders pay the price for this Government’s reckless economic gamble”.
The Labour MP said: “This Tory mortgage penalty has increased the cost of home ownership by hundreds of pounds each month, causing great worry for families while putting the prospect of owning a home further out of reach for many others.”
Where to get help if you’re struggling with mortgage payments
A spokesperson for trade association UK Finance said: “Lenders stand ready to help anyone who might be concerned about their mortgage payments. If you’re struggling, don’t put it off – speak to your lender as early as possible.
“Banks have a range of tailored options available to help. Your lender will work with you to find the best option for your individual circumstances.”
Under guidance from the Financial Conduct Authority (FCA), the lending industry must consider a range of support options, including:
- part-payment plans
- mortgage term extensions
- temporarily transferring to an interest-only mortgage
- deferring interest due