Subprime crisis to wipe out savings of 1.2 million households as payments rise

Chancellor Jeremy Hunt has so far resisted calls for a financial package to support homeowners hit by the rate hike. Credit: Lucy North/PA Wire

The subprime crisis will wipe out the savings of 1.2 million families this year and push many into bankruptcy, economists warn.

According to the National Institute for Economic and Social Research (NIESR).

This will increase the total number of families with no savings to 7.8 million, equivalent to 28% of all households.

The warning came after the Bank of England took analysts by surprise on Thursday by raising its benchmark rate by 0.5 percentage points to 5 percent. raise borrowing costs to a maximum of 6 per cent.

Fixed-rate monthly payments will rise on average from £700 to £1,000 for two million families when their deals run out, according to NIESR.

At the same time, for holders of floating rate mortgages, costs will rise on average from £450 to £700.

Max Mosley of NIESR said: «Raising interest rates to 5% will push millions of households with mortgages to the brink of insolvency.» more than lenders could take into account in stress tests.

Until recently, banks were required by law to ensure that new borrowers could withstand a three percentage point increase in the interest rate on their mortgage.

>But many households that took out home loans with interest rates as low as one to two percent are now facing spikes of up to four percentage points.

Mr Mosley said: “No creditor expects a household to withstand a shock of this magnitude, so neither should the government. Some investment should be made in reparation agreements that give households and lenders the ability to create payment plans that work for each other.”

Tomorrow, Jeremy Hunt will meet with bank leaders after turning down calls for bailouts for households struggling to weather rising interest rates. The chancellor is expected to urge banks to work with clients to provide personalized support following a similar call last December.

The average two-year fixed mortgage rate rose to 6.19% on Thursday morning, while the five-year the fixed deal reached 5.82%.

These numbers are expected to continue rising as lenders bring products back to the market at higher prices after many rushed to back out of deals last week.

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