Soaring mortgage rates will hit households harder than they did in the 1980s, when many homeowners were plunged into negative equity, according to financial experts.
Many of those with mortgages have already seen massive hikes in their repayments, while others are bracing themselves for an approaching “mortgage bomb” when their current deals end.
It is thought that around 4.2million households have already been hit by a £1,500 increase in their annual mortgage repayments.
The standard variable rate currently stands at almost six per cent, piling £3,000 on to the average annual repayment. And according to one financial information service, rates could hit a high of 8.77 per cent next year.
That now rests on what the Bank of England decides to do in the coming months. Some experts believe the bank could put the base rate up to 5.75 per cent. Next week, it is predicted that the bank will raise the rate from 4.5 to 4.75 in an effort to tackle soaring inflation. If they do, it will be the 13th rise in a row.
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According to calculations made in The Sun, such an increase next year could put an extra three per cent of the average household budget on to mortgage costs. During the 1980s crisis it was 2.4 per cent — despite mortgage rates peaking at nearly 15 per cent. However, back then homes were cheaper to buy, resulting in less mortgage debt.
While the Government has been urging banks to protect mortgage holders, Sir Ed Davey, leader of the Lib Dems, has called for a £3billion fund to support those facing having their homes repossessed due to the rising costs.
It comes at a time when public confidence in the Bank of England’s ability to control inflation has hit an all-time low and lenders withdrawing deals from the market, to be replaced by new ones with higher repayment rates.
The Resolution Foundation think tank said it expected the average two-year fixed-rate mortgage would not fall below 4.5 per cent until the end of 2027, significantly increasing the scale of the mortgage crisis currently unfolding.
Annual repayments are now on track to be £15.8 billion a year higher by 2026, up from a projected £12 billion increase at the time of the most recent Monetary Policy Report in May, the foundation said.
Around three-fifths of this increase in annual mortgage payments is yet to be passed on to households, as borrowers move off existing fixed-rate mortgage deals on to new fixed-rates, up to 2026, the report added.
This is expected to deliver a living standards hit to millions of households in the run-up to the next General Election.
The foundation, which focuses on improving living standards for those on low to middle incomes, said that the better news for the Government, however, was that the current mortgage crunch was less widespread than previous shocks. Back in 1989, nearly four in 10 households owned a home with a mortgage, and were therefore exposed to rising costs.
By last year, the combination of more older people owning outright, and fewer young people owning at all, meant that the share of households with a mortgage had fallen below 30 per cent.
Overall, around 7.5 million households with a mortgage are expected to see their repayments rise by 2026, the report said.
A Treasury spokesperson said: “We know this is a concerning time for mortgage holders, which is why the FCA (Financial Conduct Authority) requires lenders to offer tailored support to borrowers struggling to make their payments, and we continue to support mortgage holders through the Support for Mortgage Interest scheme.
“Behind this though is global inflation, continuing to eat away at incomes around the world, which is why the single biggest thing we can do to help families is to halve the rate this year.
“We are also supportive of the Bank of England in their independent decisions on interest rates, and continue to provide around £3,300 per household this year and next to help with rising costs.”