The National Institute of Economic and Social Research (NIESR) has released a study warning that the Bank Rate increase to 5% could push over a million UK households into insolvency by the end of 2023 due to rising mortgage repayments.
This could result in nearly 30% of all UK households, or around 7.8 million households, facing insolvency.
The Bank Rate has experienced its sharpest increase since the Bank of England’s independence in 1997, putting millions of households at risk.
The study suggests that the areas expected to be hit the hardest by this financial strain are the North-East and Wales, where up to 6% of households could become insolvent by year’s end.
Moreover, the cumulative impact of rising repayments could potentially reduce the UK’s GDP by 0.3%, costing households with mortgages a total of £12bn per year.
Key findings from the report reveal a projected average increase of nearly 50% in monthly mortgage repayments, a surge beyond the usual stress-test levels faced by households when applying for a mortgage.
Specifically, fixed-rate monthly mortgage repayments could rise from roughly £700 to £1,000, affecting nearly 2 million households due to remortgage. Meanwhile, for the 1.5 million households on variable-rate mortgages, repayments may escalate from around £450 to £700.
In light of these findings, the NIESR is urging the Government to encourage forbearance agreements, which allow households to negotiate manageable repayment plans when they are unable to repay their debt.
NIESR economist Max Mosley said: “The rise in interest rates to 5% will push millions of households with mortgages towards the brink of insolvency.
“No lender would expect a household to withstand a shock of this magnitude, so the Government shouldn’t either.
“Some investment should be done in forbearance agreements, giving households and lenders the ability to create payment plans that work for each other.”
