Higher monthly mortgage costs will push another 400,000 people into poverty next year as higher mortgage rates bounce back in the housing market.
The Joseph Rowntree Foundation (JRF) said an additional 120,000 households in the UK, the equivalent of 400,000 people, will plunge into poverty when the current mortgage deal expires.
The analysis assumes that mortgage rates are still high and that homeowners are forced to move to an interest rate of 5.5%. With the current standard of 2%, this change means 54% of their monthly income is spent on housing costs, up from 38%. In monetary terms, this equates to an average increase of £250, from £610 a month to £860 a month.
Mortgage rates have been on the rise due to the BoE’s policy rate hike this year, but they have risen after the disastrous mini-budget of Quasi Quarting and have remained high.
The warning comes after the Bank of England raised the cost of borrowing to 3% in the largest single rate hike since 1989. However, the impact on the mortgage market has been muted as lenders have already been pricing in a significant rate hike with some actually in place. Lower their prices amid calmer financial markets.
On Friday, the average cost for a two-year repair was 6.45%, while the average for a five-year deal was 6.28%, according to data firm Moneyfacts. A little over a year ago, it was possible for mortgage borrowers to keep an interest rate below 1% for two or five years.
People with low income mortgages are already experiencing severe financial stress as rising food, fuel and energy costs maximize household budgets. The Jordan River Foundation says that 750,000 families, or 2.4 million people, with mortgages are already living in poverty.
The anti-poverty charity said the turmoil in the mortgage market would increase competition for rental properties and could lead to a sharp rise in new property rents as landlords pay to buy-to-let their high loan costs.
Even if the housing market returns to “normal,” where mortgage rates fall below 3% and home prices are flat, lending standards may be stricter, making it more difficult for first-time buyers to get up the real estate ladder, he said.
The Jordan River Foundation’s senior policy adviser, Darren Baxter-Clough, said the government should step in to support homeowners and renters impacted by the subprime mortgage crisis but should not “support the collapsing housing market”.
“Exorbitant home prices have left millions without home ownership for decades, and trapped many in an unsustainable, insecure, and poor-quality private rental sector,” he said.