Economists have issued a stark warning that the imminent mortgage crisis is poised to decimate the savings of 1.2 million families this year, pushing numerous households into financial instability.
The National Institute of Economic and Social Research (NIESR) has predicted that households seeking to remortgage could see their bills inflate by almost 50%. This surge is likely to increase the total number of families without savings to an alarming 7.8 million, representing 28% of all households.
This warning was issued in the wake of an unexpected move by the Bank of England, which recently raised its base rate by 0.5 percentage points to 5% – a move that took analysts by surprise. This increase, which was double the anticipated rate, corroborates market forecasts that borrowing costs could reach a high of 6% on Threadneedle Street.
The NIESR further warned that monthly fixed-rate repayments could, on average, jump from £700 to £1,000 for two million families when their deals come to an end. Concurrently, mortgage holders on variable rates could see an average cost surge from £450 to £700.
Max Mosley from NIESR commented on the situation, stating, “The increase in interest rates to 5% could nudge millions of mortgage-holding households towards the precipice of financial insolvency.”
Mr. Mosley raised the alarm that the impending interest rate shock, due to escalating borrowing costs, might exceed what lenders had anticipated during their stress tests.
Until recently, regulations necessitated that banks ensure new borrowers could endure a three percentage point rise in their mortgage interest rate. However, numerous households who procured home loans at interest rates of just one to two percent are now grappling with potential increases of up to four percentage points.
Mr. Mosley asserted, “No lender would foresee a household enduring a shock of this severity; therefore, the Government shouldn’t either. There should be an investment in forbearance agreements, enabling households and lenders to forge mutually beneficial payment plans.”
Chancellor Jeremy Hunt is slated to meet with banking executives tomorrow, having previously dismissed suggestions to provide financial assistance to households battling with interest rate hikes. It is anticipated that the Chancellor will prompt banks to collaborate with customers in order to deliver customized support, mirroring a similar dialogue held last December.
The average two-year fixed mortgage interest rate soared to 6.19% on Thursday morning, while a five-year fixed deal escalated to 5.82%. These figures are predicted to continue rising as lenders reintroduce higher-priced products to the market, following a rush to withdraw deals over the preceding week.
