Lazy eyes listen
British homeowners may have to pay 50% more on their mortgages by the end of the year as a result of the Bank of England’s (BoE) interest rate hikes, according to a new analysis released on Thursday by the National Institute of Economic and Social Research (NIESR).
Higher mortgage repayments, according to the estimates, may wipe out the savings of 1.2 million British families, raising the overall number of insolvent homes to 7.8 million, or 28% of the total in the country.
The experts also predicted that growing repayments will wipe out 0.3% of the UK’s GDP and cost households with home loans a total of £12 billion ($15.2 billion) per year.
The NIESR warning follows the Bank of England’s decision on Thursday to boost its benchmark interest rate by 0.5 percentage point to 5% in order to combat the country’s persistently high inflation. While annual consumer price inflation remained constant in May at 8.7%, core inflation, which excludes volatile energy, food, alcoholic beverages, and cigarettes, increased to 7.1%, the highest level since 1992.
“The rise in interest rates to 5% will push millions of mortgage-holding households into insolvency,” NIESR’s Max Mosley remarked. He explained that many families who took out mortgages at 1-2% interest rates may face a 4-point rate increase.
“No lender would expect a household to withstand such a shock, and the government should not either.” Some investment should be made in forbearance agreements, which will allow households and lenders to construct payment schedules that work for both parties,” he said.
The average variable-rate house loan in the UK has more than quadrupled since last year, from roughly 3% to 6.19% as of Thursday morning. This has impacted about 4 million UK homeowners that have variable-rate mortgages or are about to refinance owing to fixed-rate terms expiring.
Monthly repayments for a household borrowing £300,000 ($381,000) on a 25-year mortgage have already been increased from £1,400 ($1,780) to £2,000 ($2,540), an almost 50% rise, according to NIESR, with more interest rate hikes predicted.