Millions of homeowners refixing their mortgages next year face an average annual increase of £3,000 in repayments, according to research which warns that 2023 will bring additional financial hardship for borrowers.
A report by the Resolution Foundation think tank said that the two million homeowners who will have to refix their mortgages next year face the highest interest rates since 2008. An average fixed-rate repayment will increase from £750 a month to £1,000.
The UK economy is one of the most heavily exposed to high interest rates, which feed directly into higher mortgage rates. With the base interest rate at 3.5 per cent, the interest on an average two-year fixed mortgage with a loan-to-value ratio of 75 per cent has risen to 5.9 per cent, according to data from the Bank of England.
Two-year mortgage rates went above 6 per cent in the aftermath of the mini-budget in September and are up from 1.5 per cent a year ago. About a million households on floating-rate mortgages will be exposed to rising interest rates, with investors expecting the Bank of England to raise borrowing costs above 4 per cent by spring.
Torsten Bell, chief executive of the think tank, said that millions of homeowners would suffer “four-digit increases in their mortgage bills”, alongside an expected worst annual drop in disposable income on record as inflation erodes the value of earnings. He added that “2023 should see the back of double-digit inflation” but “it looks set to be a groundhog year for many families whose incomes look set to fall by just as much as they did in 2022. For living standards, things will get far worse in 2023 before they start to get better.”
Separate figures from PwC found that nearly nine million Britons will require an overdraft to cover their everyday spending needs and will struggle to repay outstanding loans, categorising them as “financially fragile”.
Analysis from PwC and Totally Money found that consumers were taking out more expensive loans to meet the rising cost of living. An average UK household owes a record £16,200 in unsecured debt, which can include loans for cars and credit cards, amounting to more than £400 billion unsecured debt across the economy.
The rate of credit growth exceeded more than £1,000 per household in 2022, with debt more expensive. In 2016, the average household owed £10,000 in unsecured debt, a record at the time.
“Unaffordable lending and borrowing can cause real harm to individuals and society, and vulnerable consumers can be disproportionately affected,” Isabelle Jenkins, leader of financial services at PwC, said.