Number of unaffordable mortgages could double by 2018
Research by the Resolution Foundation found that more than two million homeowners face the possibility of their mortgage repayments increasing to at least one third of their monthly disposable income by 2018, by which time rates are expected to increase by almost three per cent.
Today 1.1 million households spend as much or more on their monthly repayments.
In addition, the think tank said more than 700,000 households will be “trapped” into these newly expensive mortgages because of the limited lending options available to undesirable mortgage candidates.
Mortgage holders who are self-employed, have interest-only mortgages or have very low equity in their home (less than five per cent) are unattractive to mortgage providers.
Together with the new Mortgage Market Review (MMR), which imposes stricter rules on lending, these homeowners could find themselves unable to change mortgage providers, the think tank said.
Matthew Whittaker, chief economist at the Resolution Foundation, said: “Many borrowers have enjoyed spectacular savings over recent years, with mortgage rates falling to historic lows, and most will be able to ride the tide of gradually raising interest rates. But for around one in four, even modest rate rises could create financial difficulties.
“Those at greatest risk are members of this group who also find themselves unable to access the best deals in the market today. Almost one in 10 households are doubly exposed: facing the prospect of their mortgage becoming increasingly unaffordable in the future and with the market offering them limited, if any, choice today.”