IFS economist warns millions of households there will be ‘significant increases in mortgage costs’

It is expected that on Thursday that Bank of England is rise interest rates for the 13^th consecutive month as inflation remains stubbornly high.

Interest rates has risen from 0.1% in December 2021 to 4.5% and it is expected that it could rise to 5%, which could see 1.4 million mortgage holders lose more than 20% of the “disposable income.”

According to the Institute for Fiscal Studies (IFS) households in March who have a mortgage spent an average of £670 per month on their payments and £230 of this was just the interest.

An economist at the IFS who wrote a very worrying report warned that there will be “significant increases in mortgage costs.”

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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.”

Liberal Democrat Treasury spokeswoman Sarah Olney said: “These stark figures show struggling homeowners are facing savage cuts to their incomes as mortgage rates go through the roof.”

Shadow chief secretary to the Treasury Pat McFadden said: “With inflation staying high and these new warnings that the Tory mortgage penalty will continue to painfully squeeze family finances, it’s clear this Government can’t fix these problems because they are the problem.”

The Labour MP added: “Instead of squabbling over peerages and parties and ruling out any action on mortgages, the Tories should be taking responsibility and acting now.”