Millions of homeowners face ‘mortgage bill shock’ with an average increase of £3,000 in repayments

Millions of homeowners refixing their mortgages next year will face a ‘bill shock’ with repayments set to increase by an average of £3,000.

Research from the Resolution Foundation think-tank warned that 2023 would be a ‘groundhog year’ for many families.

Rapidly rising interest rates in 2022 will feed through into higher mortgage costs next year, as around two million households move onto new fixed-rate deals. 

The Bank of England estimates total monthly mortgage payments will rise from £750 to £1,000. 

Rapidly rising interest rates in 2022 will feed through into higher mortgage costs next year, as around two million households move onto new fixed-rate deals

Household spending on energy bills is expected to reach a record high as retail prices rise further and Government support is scaled back

With base rates ending 2022 at 3.5 per cent – a 14-year high – some four million mortgage borrowers who are due to refinance next year will be hit, according to the Bank of England.

Data also revealed the interest on an average two-year fixed mortgage with a loan-to-value ratio of 75 per cent has risen to 5.9 per cent.

The Foundation described 2022 as horrendous, with real household disposable income falling by 3.3 per cent, or £800 per household, over the course of the year, marking the biggest annual fall in a century.

Inflation may already have peaked at 11.1 per cent in October and wholesale energy prices have fallen significantly, the Foundation said.

It said that firms have also been reporting that recruitment difficulties are easing.

But it added that in 2023, households are set for a further squeeze in their living standards and incomes are forecast to fall by 3.8 per cent.

This comes despite benefits and the National Living Wage being set for welcome rises of 10.1 per cent and 9.7 per cent respectively in April, it said.

Pay is set to continue falling in real terms until the second half of 2023, and is unlikely to even return to its current level until the second half of 2024, according to the think-tank, which is focused on improving living standards for those on low to middle incomes.

Household spending on energy bills is expected to reach a record high as retail prices rise further and Government support is scaled back. 

The typical household energy bill is set to rise to £2,450 in 2023, up from £1,550 in 2022, and £1,170 in 2019, the Foundation said.

With base rates ending 2022 at 3.5 per cent – a 14-year high – some four million mortgage borrowers who are due to refinance next year will be hit, according to the Bank of England

Findings from a new Resolution Foundation-commissioned YouGov survey of 10,470 adults show that people are over four times as likely to think that their financial situation has become worse rather than better over the past year

Now the cost-of-living crisis hits retirement plans: Millions of workers cut back on pension contributions to pay their food and energy bills, new research suggests 

The cost-of-living crisis is affecting people’s retirement plans with millions of workers across the country deciding to cut back on their pension contributions to help pay for rising food and energy costs.

New research from the Pensions Management Institute (PMI) found that in the past year people have abandoned payments into their retirement funds to keep hold of £550 or more as high interest rates continue to bite.

Abandoning such savings could delay employees’ plans to pack in work by three years the research body found, with 28 per cent of those surveyed believing they will never be able to retire.

Research from the Pensions Management Institute (PMI) found that in the past year people have abandoned payments into their retirement funds to keep hold of £550 or more as high interest rates continue to bite

According to the PMI, 20 per cent of staff have opted out of their workplace’s pensions schemes or asked to their contributions reduced over the last year.

A further 20 per cent are considering taking similar steps to create some extra cash to use now. 

By axing their pensions contributions each month, those on lower salaries of £20,000 a year can boost their take-home by around £550 a year, The Times reports.

Those higher-earners therefore will be able to increase their take-home each month even further.

Avoiding pension payments, however, means that employees would miss out on their employer’s tax relief, resulting in less being saved for their later years.

PMI surveyed 2,000 employees in November and found that seven per cent had taken the decision to opt out in the past 12 months.

While energy bills support is scaled back, the report noted that tax rises will be scaled up, with a typical middle-income household set to see their personal tax bills rise by around £1,000 from next April.

Findings from a new Resolution Foundation-commissioned YouGov survey of 10,470 adults show that people are over four times as likely to think that their financial situation has become worse rather than better over the past year.

One in eight (12 per cent) said their financial situation was better and more than half (57 per cent) said it had deteriorated.

Torsten Bell, chief executive of the Resolution Foundation, said: ‘From a cost-of-living perspective, 2022 was a truly horrendous year – far worse than any year in the pandemic or financial crisis.

‘2023 should see the back of double-digit inflation, but it looks set to be a groundhog year for many families whose incomes look set to fall by just as much as they did in 2022.

‘Many families will be helped by benefits and the National Living Wage rising, both by around 10 per cent next April.

‘But this will be swamped by shrinking pay packets, a record £900 rise in energy bills, tax bills for the typical household rising by £1,000, and millions seeing four-digit increases in their mortgage bills.

‘For families’ living standards, things will get far worse in 2023 before they start to get better.’

A Treasury spokesperson said: ‘We are committed to supporting families with children, which is why we increased both child benefit and child tax credits in line with inflation this year and made changes to Universal Credit so that working families can keep more of what they earn.

‘We also have a plan that will help to more than halve inflation next year, bearing down on the financial pressures that households face, and have already lifted millions of people out of paying tax altogether by raising the tax-free allowances for both income tax and National insurance by more than inflation since 2010.

‘This is on top of substantial support with the cost of living, with everyone benefiting from energy bills being held down this winter and more than eight million vulnerable households having already received £1,200 in cash payments straight to their bank accounts – with a further £900 for those on means-tested benefits next year.’

The nation headed into 2022 with optimism for the economy, but hopes of a bumper year of growth unrestrained by Covid restrictions were dashed as the cost-of-living crisis took centre stage.

Just as the worst of the pandemic seemed to be behind us, the emergence of soaring inflation soon became the next big threat to the economy and one which is set to send the UK plunging back into recession.

While Bank of England policymakers had forecast inflation to jump higher as supply chains struggled to keep up with surging demand, they were not prepared for Russia’s invasion of Ukraine on February 24 and the economic onslaught that followed as a result.

While Bank of England policymakers had forecast inflation to jump higher as supply chains struggled to keep up with surging demand, they were not prepared for Russia’s invasion of Ukraine on February 24 and the economic onslaught that followed as a result

The market chaos sparked by Liz Truss and ex-chancellor Kwasi Kwarteng sent mortgage rates racing to highs not seen for decades 

As the UK joined its international neighbours in shunning Russian gas and oil, energy prices were quickly sent rocketing higher, pushing inflation to levels not seen for more than 40 years.

The Bank, which had started hiking interest rates last December as the so-called beast of inflation emerged, began ramping up its response.

From starting the year at 0.25 per cent, rates were quickly raised at each of the subsequent policymaker meetings throughout the year, including a 0.75 percentage point hike in November, marking the biggest single increase since October 1989.

Rising borrowing costs piled yet more misery on hard-up households and businesses and calls mounted for the Government to step in and provide support.

Amid turmoil at a political level, Britons waited patiently for news on what would happen to the Ofgem price cap before the Government – under the brief and disastrous reign of former prime minister Liz Truss – finally unveiled support to limit bills to around £2,500 a year.

The move helped provide a ceiling to runaway inflation, although it still reached an eye-watering 41-year high of 11.1 per cent in October.

But rather than helping take the pressure off borrowers, the market chaos sparked by Ms Truss and ex-chancellor Kwasi Kwarteng sent mortgage rates racing to highs not seen for decades.

Despite being unwound swiftly, the policies are thought to have inflicted some lasting damage on the economy and the UK’s public finances, while mortgage rates are still higher than they should be.

It comes as house prices in the UK have notched up their longest losing streak since the 2008 financial crisis as average prices continued to fall in December, albeit less rapidly than in recent months.

The average price of the houses that were sold during the month dropped by 0.1 per cent, the Nationwide Building Society said on Friday.

It was the fourth time in a row that prices had dropped month-on-month, and means that house prices are now just 2.8 per cent higher than they had been 12 months ago.

Nationwide said that the average home sold for £262,068 during December, down by a little over £1,700 compared to November.