2 million homeowners at risk of defaulting in 2023 as mortgage costs hit 25% of income

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The extra costs of remortgaging are the equivalent of 3.1 percent of a person’s income after tax, a group has found.

More than a quarter of mortgage payers will be at risk of default by the end of 2023, as mortgage costs hit 25 percent of their household income after tax, according to new research by Hargreaves Lansdown. Just over two million people will be in this position – a rise of 425,000 over the past 18 months.

With millions facing remortgaging this year, Sarah Coles, head of personal finance at Hargreaves Lansdown, warned homeowners face a “remortgage lottery” this year.

Researchers found some 347,000 Britons are at ‘critical risk’ as they have low savings resilience to deal with surging mortgage repayments.

The Bank of England has increased the Base Rate – which is currently at four percent – 10 consecutive times over the past year, with some predicting it could continue to climb. It means those on a fixed rate deal coming to the end could see a huge increase in their repayments.

Ms Coles warned said: “The losers are those whose fixed deals run out by the end of the year, who’ll take a hit that’s equivalent to an 80 percent hike in their energy bills.

“Our modelling shows that two million households will be at risk of falling into arrears, but because the cost-of-living crisis has taken a massive toll on financial resilience – from savings to how much cash we have left over at the end of the month – almost a million people will be wrestling with even worse problems.

“It’s horribly unfair, because those who remortgage this year face significantly higher rates.”

At present, the average five-year fixed rate has fallen to five percent while the average two-year fixed rate is slightly higher.

But many people on a fixed deal remortgaging this year may have had previous rates nearer two percent and so will see a large increase, warned Ms Coles.

Meanwhile, those with a deal that ends in 2024 are in a “much better position” as rates are expected to fall over the course of this year.

The Bank of England has continually upped the base rate in a bid to tackle soaring inflation, which peaked in late 2023, at just over 11 percent.

The rate of inflation is currently 10.1 percent with Britons still facing rising costs for many household bills.

Analysts found 650,000 people are at ‘high risk’ as they face a large mortgage repayments hike and have less than three months worth of essential expenses saved away for emergencies.

A further 347,000 are classed as at ‘critical risk’ because on top of this they are spending more cash each month than they have coming in.

Single people are three times more likely to be high risk and five times more likely to be at critical risk than couples.

Londoners are particularly vulnerable with 38.5 percent of those remortgaging in the capital in the two at risk categories, while people in the south east who are remortgaging are 30 percent at risk.

Younger property owners tend to be in cheaper homes but have bigger mortgages and repayment costs.

Millennials and Generation Z make up just 46 percent of the market but they make up 61 percent of those at risk.

Ms Coles said: “Those baby boomers who still have a mortgage also face huge challenges. This is a relatively small group, and is likely to include those rebuilding after divorce, or who hit financial problems along the way that left them with a mortgage later in life.

“They may also have scaled back their work commitments and be managing on a lower income. As a result they’re one and a half times as likely to be at high risk and twice as likely to be at critical risk.”

Self-employed people who are remortgaging are more than twice as likely to be at high or critical risk than full-time employees, while part-time workers are more likely than full-time workers to be at risk.

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