According to Institute for Fiscal Studies (IFS), the proportion of households where mortgage repayments were more than 20 per cent of disposable household income was 11 per cent last year.
This has risen to 14 per cent this year as the base rate has increased by 1.25 per cent, and if interest rates rise by 2.5 per cent, then this proportion would grow to 17 per cent, the body estimated.
The IFS added that this would be in line with the level reached in 2007 and 2008, despite the number of mortgagors decreasing from 42 per cent to 35 per cent.
The report noted that higher-income households, the top-income fifth of the population, and those spending more than 20 per cent of their income on mortgage repayments would be most impacted, with the proportion predicted to rise from 11 to 19 per cent if interest rates grow by 2.5 per cent.
Higher-income households are defined at those with a disposable household income at of least £44,000 per year for a childless couple.
For the lowest income households, those on less than £18,000 for a childless couple, the proportion paying 20 per cent or more of their disposable income on mortgage repayments, would rise from 10 per cent to 13 per cent if the base rate increases by 2.5 per cent.
The report said that this was due to the fact that high-income households were more likely to have a mortgage than low-income households.
Groups of concern are older people and low-income households
It added that the a “group of concern” may be those who have a mortgage but have “relatively low current income”.
The IFS said that a 2.5 per cent rise in mortgage interest rates would mean an increase in the fraction paying more than 20 per cent of their income from 54 per cent in 2021–22 to 68 per cent.
The report added that the majority of mortgage holders were now on fixed rates so they would likely be insulated from rate changes.
It added that older people with mortgages and those on lower levels of household income were “more likely to be exposed to interest rate rises in the short term”.
The IFS estimated that 36 per cent of those in the lowest-income fifth of the population have a variable rate mortgage, compared to 27 per cent of those in the highest-income fifth.
It noted that 15 per cent of mortgagors aged 30 to 34 have a variable rate mortgage, which is lower than with 44 per cent of those aged 55 to 59.
