There are fresh fears that new mortgage prisoners may be created as a result of the current interest rate environment.
Analysis by financial data firm Equifax has led it to warn of a “looming mortgage shock” as the average monthly mortgage payment is expected to spike upwards later this year.
According to the research, over 367,000 five-year fixed-rate mortgage terms are due to come to an end over the next year.
The majority of these have an average outstanding balance of £170,000, which would mean that if customers were to revert to a variable rate product, they would see their average monthly repayments increase by around £300.
Survey data released earlier this week from Hargreaves Lansdown also chimed with these findings and led head of personal finance, Sarah Coles, to describe the situation as "a remortgage nightmare lying in wait".
The Hargreaves Lansdown findings suggested that almost half of borrowers (48 per cent) would struggle financially if their monthly mortgage repayments increased by as little as £150.
According to Equifax’s research, for those entering the housing market, average monthly repayments have increased by 40 per cent in two years.
The average mortgage applicant at the end of 2021 would pay around £1,000 a month, whereas now they could pay up to £1,400, Equifax said.
As a result of this increase, Equifax noted that for any single person their monthly mortgage outgoings will be more than 50 per cent of their salary.
Equifax UK’s chief data and analytics officer Paul Heywood said there is a risk that some consumers could become mortgage prisoners.
“Amongst these consumers, we expect to see a gradual increase in missed payments,” Heywood said.
“Diminishing affordability levels may also restrict or even stall growth in house prices, perhaps leading to a correction in the housing market,” he added.
In Heywood’s view, credit providers and lenders need to act to understand which of their customers are most likely to be impacted by rising mortgage rates.
Last month, FTAdviser reported that rate rises were pushing some existing mortgage prisoners to food banks.
Advisers told FTAdviser of pensioners receiving their first foodbank parcel as they "haven't been able to figure out any alternative options" as their mortgage repayments keep going up.
jane.matthews@ft.com
