The crippling impact of soaring mortgage rates was laid bare today with estimates that 1.4million Brits face losing at least a fifth of their disposable income.
Figures compiled by the respected IFS think-tank show that across the country people are set to pay nearly £280 more each month, rising to nearly £360 for 30 to 39-year-olds.
But the hit will be ‘substantially larger’ for some, costing 1.4million – including 690,000 aged under 40 – 20 per cent or more of their disposable income.
The Bank of England looks certain to impose its thirteenth interest rate hike in a row tomorrow after inflation defied expectations by staying at eye-watering levels last month.
Headline CPI came in at 8.7 per cent in May, the same as the figure for April. Analysts had pencilled in a drop to 8.4 per cent.
In a particularly grim sign, core inflation actually rose to 7.1 per cent, the fastest pace since 1992.
Figures compiled by the respected IFS think-tank show that across the country people are set to pay nearly £280 more each month, rising to nearly £360 for 30 to 39-year-olds
The IFS analysis laid bare the scale of the hit for many Brits
The Bank of England looks certain to impose its thirteenth interest rate hike in a row tomorrow
The ‘stickiness’ of price rises – staying significantly higher than other countries – ramped up concerns that inflation has become embedded in the economy. A member of Jeremy Hunt’ economic advisory council warned the Bank of England needs to ‘create a recession’.
There is speculation that Threadneedle Street could now opt for a half-point rise to 5 per cent when the Monetary Policy Committee meets tomorrow, rather than the 0.25 percentage points previously anticipated.
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It was just 0.1 per cent as recently as December 2021.
The 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.
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 per cent, with those aged 30-39 again seeing the biggest hit (almost 11 per cent).
‘For some the rise will be substantially larger: almost 1.4million – 690,000 of whom are under 40 – will see their disposable incomes fall by over 20 per cent.’
Those in London will face the largest hits, with mortgage payments rising by around 12 per cent of disposable income on average, the IFS said.
Mortgagors in Northern Ireland are the least exposed, losing around 5.3 per cent of disposable income typically, according to the IFS.
The headline CPI came in at 8.7 per cent in May, the same as the figure for April – defying hopes of a fal
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 per cent.
‘And for 1.4million mortgage holders – half of whom are under 40 – mortgage payments are set to rise by an eyewatering 20 per cent 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.’
