Mortgaged households could see a 3% reduction in disposable income

The average household that took out a mortgage in 2021 faces a 3% reduction this year in the amount of disposable income it has left over after home loan, credit commitments and living costs, according to UK Finance.

The analysis found most borrowers across all income brackets would still qualify for the same sized mortgage now as they did last year. However, there will be some borrowers who would not qualify for the size of loan granted last year due to the new additional costs, which may result in a softening of demand for mortgages this year.
While mortgage activity is expected to be strong through this year, this will largely be driven by customers coming to the end of their fixed-rate deals and looking to switch to a new rate, it added.

Seperate research also found that millions of homeowners face higher mortgage payments this year as a result of interest rate rises, with the average fixed rate set to go up by almost £200 a month.

While the Bank of England is expected to raise rates by as much as half a percentage point this week, taking them to 1.5%, the Government is not planning to offer any targeted support to borrowers.

UK Finance data shows that 1.3m fixed-rate mortgage deals are ending at some point this year, forcing borrowers to refinance at a higher rate. There are also nearly 1.9m people on a variable or tracker mortgage, which move automatically in line with interest rates. With rates at 1.5%, the average fixed-rate borrower will have to pay around £190 extra a month to service their mortgage.