More than 1.4 million households in the UK are facing a steep increase in their monthly outgoings when they are forced to renew their fixed rate mortgages this year, researchers have found.
The Office for National Statistics (ONS) found that tens of thousands of households each month in 2023 are coming to the end of their fixed mortgage rates, and are now faced with significantly more expensive deals.
The majority of fixed rate mortgages in the UK (57%) coming up for renewal in 2023 were fixed at interest rates below 2%.
As of Monday, the average two-year fixed rate mortgage came with an interest rate of 5.75%, while the average five-year fixed was only slightly less at 5.57%, according to Money Facts.
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Mortgage rates have climbed as the Bank of England continues to raise interest rates in an effort to stem soaring inflation, the rate at which the cost of items increases, which was at 10.7% in November 2022, according to the latest ONS figures released last month.
In December, the Bank of England raised interest rates from 3% to 3.5%, their highest level for 14 years and the ninth time in the row it has hiked interest rates.
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Under the incoming changes this year, the monthly payment on a 25-year mortgage for a household that has borrowed £200,000 would go from £848 with an interest rate of 2% to £1,289 on an interest rate of 6%, an increase of £441.
On a £300,000 mortgage, the payments at those rates would leap by £661 from £1,272 to £1,933.
The ONS said the average interest rate on outstanding mortgages with a fixed rate was 2.08% in November 2022, compared to an average interest rate of 4.41% on variable-rate mortgages and average interest rates being offered on new fixed-rate mortgages at about 6%.
According to the ONS, in the first three months of this year, 353,000 fixed rate mortgages will have to be renewed.
Based on Bank of England transactions data, the ONS said the number of fixed rate deals coming to an end in 2023 will peak between April and June at 371,000.
There are fears the increase in mortgage rates could force people to lose their homes and deepen the UK’s recession, as households try to find ways of cutting back on spending in the midst of a cost of living crisis.
Fixed rate deals soared in the wake of the government’s disastrous mini-budget announcement last September, which ultimately led to the downfall of Liz Truss as prime minister.
Sarah Olney, the Liberal Democrat spokesperson for the Treasury, told Yahoo News UK: “The blame for these sky-rocketing mortgage rates lies squarely at the feet of the Conservative government for crashing our economy.
“No one should lose their homes simply as a result of the government’s reckless mismanagement of our economy.
“We are calling for immediate support for those struggling to pay their mortgages before it’s too late.”
Gary Smith, financial planning director at wealth manager Evelyn Partners, said: “Those who have deals expiring this year face a difficult choice as to whether to fix again or risk a variable-rate deal.
“The former could mean locking in at a relatively high interest rate in order to achieve certainty.
“The latter could mean rising payments in the short-term but possibly lower payments in the medium-term as benchmark interest rates plateau or even start to come down.”
A report published on Monday by the Resolution Foundation think tank warned that worse is still to come, saying families have only experienced half of the lost income they are expected to suffer during the cost of living crisis.
It said the average household in the UK will be left £2,100 worse off by the end of the next financial year.
The Resolution Foundation said the typical income for a working age family is set to drop by 3% in the year to the end of March 2023, followed by a 4% drop over the following 12 months.
The 7% drop will hit families harder than during the financial crisis more than a decade ago. It said the post-crisis squeeze then only reached about 5% between the 2010 and 2012 financial years.
It would leave households worse off than they were before the pandemic until 2028, the think tank said.
“Britain is only at the mid-point of a two-year income squeeze, which is set to leave typical families £2,100 worse off,” said Resolution Foundation researcher Lalitha Try.
Watch: Bank of England says inflation ‘below where we thought it would be’
