Additionally, the think tank stated that a period of higher interest rates will create “winners” and “losers,” with some individuals able to gain from the rising rates.
A renowned think tank has warned that more than five million homeowners could see their annual mortgage payments increase by an average of £5,100 by the end of 2024.
Over the next two years, mortgage payments will increase by £26 billion annually, according to the Resolution Foundation.
The average payments for affected households in London are predicted to climb by £8,000 over this period, which is more than double the increase of £3,400 experienced by households in Wales.
However, the impact will be focused on London, where less than one-fifth (19%) of families have a mortgage.
“British households are experiencing an inflation-driven cost-of-living crisis as pay packets shrink and energy costs rise,” said Lindsay Judge, head of research at the Resolution Foundation.
Considering that nearly half of all mortgage-holding households are projected to see their family budgets decline by at least 5 percent as a result of higher payments, the impact of rising interest rates on living standards will be widespread.
The impact on the majority of mortgaged households, who are on fixed-rate mortgages, will rise over the next years as they switch from lower rates to new terms, the think tank added.
One of the many areas thrown into disarray by the government’s mini-budget at the end of September was mortgages.
The current average two-year fixed mortgage rate is the highest since 2008
After former chancellor Kwasi Kwarteng unveiled his economic policies in the House of Commons, the number of market deals plummeted.
The average two-year and five-year fixed mortgage rates have reached their highest levels since 2008, at 6.47 percent and 6.27 percent, respectively.
According to Moneyfacts.co.uk, there were 3,112 mortgage options on the market on Friday, compared to 3,961 on the day of the mini-budget.
According to the Resolution Foundation’s current forecasts, by the beginning of 2025, at least 5% of all mortgaged households’ net incomes will be consumed by increasing mortgage costs.
A rise in interest rates will produce winners and losers.
It was stated that households with higher incomes will have the greatest average increases in mortgage expenses in terms of cash, but that those with lower incomes will experience the greatest increase as a percentage of their income.
Some homeowners may be able to prevent increasing costs by reducing their mortgage load with savings or by downsizing to a less expensive home.
The think tank also warned that a period of higher interest rates will create “winners” and “losers,” with some people, such as retirees and first-time homebuyers, able to benefit from the rising rates.
The foundation noted, “Regardless of how the future develops, it is reasonable to predict that rising interest rates would not only cause (often severe) issues for a very large number of people, but also have important political repercussions.”
