Millions of Brits could See Savings Wiped Out As Mortgage Increases by Year-End, Warns NIESR Report
TEHRAN (Tasnim) – British homeowners may see their mortgage payments surge by 50% before the end of the year, as the Bank of England's (BoE) interest rate hikes take effect, according to a new report published by the National Institute of Economic and Social Research (NIESR) on Thursday.
The report highlights that higher mortgage repayments could deplete the savings of approximately 1.2 million British families, resulting in a total of 7.8 million insolvent households, accounting for 28% of the country's total.
Furthermore, the analysis estimates that the increased repayments will erase 0.3% of the UK's gross domestic product (GDP) and burden households with home loans with a collective cost of £12 billion ($15.2 billion) annually.
NIESR's warning comes in the wake of the BoE's decision on Thursday to raise its base interest rate by 0.5 percentage points to 5%, as the regulatory body seeks to control the persistently high inflation in the country. Although annual consumer price inflation remained unchanged at 8.7% in May, core inflation, which excludes volatile energy, food, alcoholic beverages, and tobacco, reached 7.1%, its highest level since 1992.
Max Mosley from NIESR expressed concern, stating, "The rise in interest rates to 5% will push millions of households with mortgages towards the brink of insolvency." He explained that many families who obtained mortgages at interest rates of 1-2% may now face a surge of 4 percentage points.
Mosley emphasized the need for action, saying, "No lender would expect a household to withstand a shock of this magnitude, so the Government shouldn't either. Some investment should be done in forbearance agreements, giving households and lenders the ability to create payment plans that work for each other."
Over the past year, the average variable-rate home loan in the UK has more than doubled, rising from approximately 3% to 6.19% as of Thursday morning. This increase has impacted around 4 million UK households that either have variable-rate mortgages or are required to remortgage due to the expiration of their fixed-rate deals.
NIESR's calculations indicate that for a household borrowing £300,000 ($381,000) on a 25-year mortgage, monthly repayments have already surged from £1,400 ($1,780) to £2,000 ($2,540), representing an almost 50% increase. The report warns that with further interest rate hikes expected, these bills will continue to rise.