Research conducted by the Institute for Fiscal Studies (IFS) has suggested that 1.4 million individuals could lose 20% of their disposable income as a result of the recent interest rate rise.
The Bank of England recently raised the UK base interest rate to a 15-year high of 5% as it continues to tackle soaring inflation.
According to the IFS, in 2022, households with a mortgage spent an average of £670 per month on mortgage payments – £230 of this was on interest payments. The business group warned that households will pay almost £280 more each month as a result of the rate rise, significantly affecting mortgagors’ disposable incomes.
60% of individuals with a mortgage will spend more than a fifth of their income on mortgage payments, the research suggested.
The IFS found that over 14 million adults aged 20 and over have a mortgage, with many currently having a fixed rate mortgage. This means they are shielded in the short run from rate rises; however, it warned that eventually fixed terms end and homeowners will be exposed to much higher rates.