The living standards of 5 million households will be hit hard in the next two years as the average mortgage cost shoots up by £5,100, experts predict.
In total, mortgage payments are forecast to rise by £26bn a year by the end of 2024 as people’s fixed rates end and they are forced onto more expensive deals.
Lower-income homeowners will face the biggest increase calculated as a share of their income, according to the Resolution Foundation, a think tank focused on improving living standards.
Its analysis found that more than 5 million families will face rises in their annual mortgage payments of an average of £5,100 between now and the end of 2024, with £1,200 of that reflecting higher expectations of interest rate rises since Kwasi Kwarteng’s mini-Budget.
The Bank of England is on course to raise interest rates to 5 per cent by early next year from just 0.25 per cent at the start of this year.
Around 1.2 million of the 7.4 million households with a mortgage on their main home will face bills rising immediately, in line with the Bank rate, the study says.
By the end of 2024, 5.1 million homeowners – nearly a fifth of households in Britain – will be spending more on their housing because of rate rises.
The higher bills will be stark, says the foundation.
The average household, including those protected by fixed rates, will have to find an extra £3,500 a year. And in the coming two years, the 5.1 million people affected will have to find another £5,100.
The researchers say although higher-income households will face the biggest increases in cash terms, it is lower-income homeowners that face the biggest increases as a share of their income.
Lindsay Judge, of the Resolution Foundation, said rising interest rates would cause a fresh living standards crunch.
“Between now and the next election, Britain is on track for a £26bn mortgage hike as over 5 million households see their annual mortgage payments rise by £5,100 on average,” she said.
“With almost half of all mortgage or households on course to see their family budgets fall by at least 5 per cent from higher payments, the living standards pain from rising interest rates will be widespread.”
In early 2025, around 2 million households will have lost at least 10 per cent of their household income, the research found.
It also noted that higher interest rates will benefit people such as retired savers and young people saving up.
