Chancellor Jeremy Hunt has so far resisted calls for a financial package to support homeowners hit by rising rates - Lucy North/PA WireThe mortgage crisis will wipe out the savings of 1.2m families this year and push many into insolvency, economists have warned.
Households having to remortgage face their bills rising by nearly 50pc, according to the National Institute of Economic and Social Research (NIESR).
This will push the total number of families with no savings to 7.8 million, equivalent to 28pc of all households.
The warning comes after the Bank of England on Thursday took analysts by surprise when it raised its base rate by 0.5 percentage points to 5pc.
The increase was twice as large as expected and cemented market predictions that Threadneedle Street will take borrowing costs to highs of 6pc.
Fixed-rate monthly repayments will on average rise from £700 to £1,000 for two million families when their deals end, NIESR said.
Meanwhile, mortgage holders on variable rates will on average see costs rise from £450 to £700.
Max Mosley from NIESR said: “The rise in interest rates to 5pc will push millions of households with mortgages towards the brink of insolvency.”
Mr Mosley warned that the rate shock awaiting households amid spiralling borrowing costs would be greater than lenders would have accounted for in stress tests.
Regulation up until recently required banks to ensure that new borrowers could withstand a three percentage point increase in the interest rate on their mortgage.
But many households who took out home loans with interest rates of only one to two percent are now facing jumps of as much as four percentage points.
Mr Mosley said: “No lender would expect a household to withstand a shock of this magnitude, so the Government shouldn’t either. Some investment should be done in forbearance agreements, giving households and lenders the ability to create payment plans that work for each other.”
Jeremy Hunt tomorrow will meet bank bosses after resisting calls to give financial help to households struggling to withstand rate rises. The Chancellor is expected to urge banks to work with customers to provide tailored support following a similar conversation last December.
The interest rate on the average two-year fixed mortgage rose to 6.19pc on Thursday morning, while a five-year fixed deal reached 5.82pc.
These figures are expected to keep rising as lenders bring back products on the market with higher prices after many rushed to pull deals over the past week.
Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month, then enjoy 1 year for just $9 with our US-exclusive offer.Click Here To Get Funded!