New research by Hargreaves Lansdown has found that over 1.4 million people remorgaged from a fixed rate mortgage last year with with more than half coming off rates under 2% and that by the end of last year, more than a third were struggling with rent or mortgage payments.
The research found that 470,000 are at critical risk of falling into arrears.
The analysis also showed the areas most exposed to mortgage rises are those where prices tend to be higher including Bromley, Windsor and East Hampshire. The biggest average rises in mortgages are in Kensington and Chelsea at 26.8%, Camden at 23.1% and Tower Hamlets at 22.1%. The most exposed areas to rental increases are dominated by London and the immediate surrounding areas.
The biggest average rental increases are in Kensington and Chelsea at 6.1%, Hackley at 5.8% and Westminster at 5.5%.
Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “The runaway cost of keeping a roof over our heads is laying waste to the financial resilience of millions of people. The average 2-year fixed mortgage rate is 5.84%, according to Moneyfacts, which is a horrendous hike for the 1.4 million people who remortgaged last year – especially when over half of them had previously been paying less than 2%. Meanwhile, average rents are up almost 10%, pushing people to breaking point. The squeeze on renters is actually tighter than on those moving to a new mortgage.
“The HL Savings and Resilience Barometer found that those who have remortgaged on a significantly higher rate are reeling from a horrible impact. By the middle of this year, 26% of mortgage holders will be spending a quarter of their after-tax income on the mortgage – which is when they’re considered to be at risk of missing mortgage payments. To make matters worse, 230,000 of those people have cash savings that cover less than three months of essential spending – so they can’t fall back on their savings to close the gap. Meanwhile, another 470,000 people in this position also have unsustainable spending – because they’re spending more than they’re earning. As a result, they’re considered to be at critical risk. It means almost half a million people could be in dire straights in the next couple of months.
“Things are actually even worse for renters. Private rents tend to be similar to mortgage payments, but households that rent earn far less than those who own. It means their housing costs swallow a much bigger slice of their income. As a result, they have around £193 left at the end of the month, and fewer than half have enough emergency savings. They’re also falling worryingly short when it comes to saving for the future. Only 18% are on track for a moderate retirement income, compared to 55% of those who own with a mortgage.”