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Mortgage Holders Brace for Financial Impact

Over 1.4 million mortgage holders in the UK are expected to experience a significant blow to their disposable incomes as mortgage costs surge, according to a report by the Institute for Fiscal Studies (IFS). The report highlights that mortgage costs have reached their highest levels since the 2008 financial crisis, with almost 1.4 million households projected to lose at least 20% of their disposable incomes. 

The IFS report indicates that individuals under the age of 40 with larger mortgages will bear the brunt of this financial impact, particularly in London and the south-east of England where property prices are typically higher. Those in their 30s will face the biggest increase in mortgage payments, amounting to an additional £360 per month, equivalent to 11% of their disposable income.

This warning comes at a time when pressure is mounting on the government to intervene in what some MPs have described as a "mortgage timebomb" waiting to affect millions of households as they near the end of their fixed-rate mortgage deals. Before the next election, which is scheduled to take place by 28 January 2025, more than a quarter of mortgage holders are expected to reach the end of their cheaper deals.

High street banks driving up new home loan costs above 6%, the highest levels since last autumn's mini-budget led by Liz Truss, are contributing to the rise in costs faced by households. Furthermore, the Bank of England is anticipated to raise interest rates for the 13th consecutive time on Thursday in response to persistently high inflation, leaving the UK with the highest rate among G7 countries.

The IFS analysis reveals that over 14 million adults over the age of 20 currently have a mortgage. While many are shielded from rate rises in the short term due to fixed-rate mortgages, they will eventually face soaring costs once their fixed terms end. 

As of March 2022, households with a mortgage were spending an average of £670 per month on payments. On average, individuals in mortgage-holding households will need to allocate nearly £280 extra each month, with those in their 30s facing an additional burden of around £360. 

Households in London and the south-east of England will experience the largest increases, with average monthly payments expected to rise by over £500, representing approximately 12% of disposable income. On the other hand, Northern Ireland will see the least impact, with average monthly payments projected to increase by just over £150, which is less than 6% of disposable income. 

Thomas Wernham, a research economist at the IFS, expressed concern about the situation, stating that many families purchased homes with significant mortgages when interest rates were very low. As their fixed-rate offers expire, they will be exposed to substantially higher interest rates, potentially resulting in serious financial challenges. Wernham emphasised that these significant increases in mortgage costs coincide with existing cost-of-living pressures due to high food and energy price inflation, making the situation even more challenging for affected individuals.

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