A study by the National Institute of Economic and Social Research (NIESR) reveals that the bank rate hike to 5% will cause more than a million UK households, 4%, to exhaust their savings due to higher mortgage payments. Almost a third of households, 7.8 million, will become insolvent by the end of this year.

Monthly mortgage repayments have doubled on average, pushing properties past stress test thresholds.

Almost two million households needing to remortgage will see the average monthly repayments increase by £300 to £1,000 for fixed-rate products. Variable rate monthly mortgage repayments will increase from £450 to £700, affecting 1.5 million households.

The report said that the most vulnerable areas are Wales and the North East where it is projected that 6% of households will become insolvent by 2024 due to payment rises.

UK GDP will drop by 0.3% as all mortgaged households will need to shell out £12bn per year.

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Lenders and Government need to work with ‘shocked’ households

The NIESR states that the Government should consider intervening in forbearance agreements to help households create affordability-based repayment plans when they are unable to repay their debt.

Max Mosley, NIESR economist, said: “The rise in interest rates to 5% will push millions of households with mortgages towards the brink of insolvency. 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.”