Inflation remains stubbornly high, causing significant financial strain for Londoners, individuals under 40, and renters across Britain. The Institute for Fiscal Studies (IFS) has highlighted
the alarming magnitude of the escalating mortgage crisis, fueling concerns that the Bank of England might be compelled to raise interest rates to combat soaring inflation.
Recent data paints a bleak picture:
In May, inflation stood at 8.7%, the same as April, driven by surging airfare, second-hand car, and computer game prices—exceeding predictions made by financial experts.
Even more worrisome, core inflation, which excludes food and energy costs, rose to 7.1%—the highest since March 1992.
Britain's total debt surpassed £2.6 trillion in May, surpassing the annual GDP.
Despite a slight decrease from April's peak, food inflation remains a significant burden on households, standing at 18.4% in May, after hitting a 45-year high in March.
Market speculation suggests that the Bank of England may raise interest rates to an unprecedented six percent, aiming to curb excessive demand.
Bank of England's Monetary Policy Committee is convening soon, and there are expectations of a substantial interest rate hike from 4.5% to five percent.
Amidst this gloomy outlook, the newly released IFS report reveals that around 1.4 million mortgage holders, including approximately 300,000 in London, will experience mortgage payment increases of at least 20% of their disposable income as they transition from low-rate to significantly higher-rate deals. Notably, around 690,000 of these mortgage holders are under the age of 40.
London, specifically, will witness the most substantial average rise in monthly mortgage payments, amounting to £520. In comparison, the wider South-East region will face an average increase of £390, while the North and East Midlands will experience increments below £200.
The surge in mortgage bills will cause a drop in disposable income by an average of 12% in London, 9.4% in the South-East, and around six to seven percent in other regions such as the North, Midlands, Scotland, and Wales.
Renters are not spared from the financial burden either, as landlords pass on rising mortgage costs by significantly raising rent prices.
Tom Wernham, co-author of the IFS report, expressed concern, stating, "Given the cost-of-living pressures people are already facing due to high food and energy price inflation, these significant increases in mortgage costs could not come at a worse time."
According to the think tank, the average two-year fixed-rate mortgage has surged from 2.65% to slightly above six percent since March 2022. Approximately 300,000 fixed-rate mortgages come to an end every quarter.
If mortgage rates remain at current levels, homeowners will eventually witness an average increase of £280 in their monthly mortgage payments compared to the rates in March 2022. This amounts to 8.3% of their disposable income.
Individuals in their thirties will experience the most substantial rise, with monthly payments jumping by £360, equivalent to 11% of their disposable income.
The report further suggests that soaring interest rates have likely contributed to the significant rent hikes experienced by renters, as landlords face escalating borrowing costs.
The latest inflation figures reveal staggering price increases, including 46.9% for olive oil, 28.8% for eggs, 28.5% for pasta and couscous, 28.5% for low-fat milk, 23.4% for yoghurt.