The Bank of England’s Monetary Policy Committee are set to
announce their next base rate decision on Thursday
22nd June, with important implications for mortgage
interest rates. So far, since March 2022 the average two-year
fixed rate mortgage has risen from 2.65% to 6.01%. If rates
remain this high, it means that:
- On average, mortgage holders will see their mortgage payments
rise by £280 per month – equivalent to 8.3% of their disposable
income (i.e. income after mortgage payments).
- The biggest rise is for those in their 30s, for whom payments
will jump by £360 per month, or 11% of disposable income.
- Around 1.4 million mortgage holders – half of whom are under
40 – will see their mortgage payments rise by at least 20% of
their disposable income.
- Those in London will face the largest hits, with mortgage
payments rising by around 12% of disposable income on average.
The figures for the South East, East and South West of England
are all above 9%. Mortgagors in Northern Ireland are the least
exposed (5.3% of disposable income).
- After this rise, around 60% of the 14 million with a mortgage
(i.e. 8.5 million adults) will spend at least a fifth of their
income on mortgage payments. This is a substantial increase. In
March 2022, only 36% of those with a mortgage (5.1 million) paid
at least this much of their incomes.
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."
