No one can have failed to pick up on the radical change in mortgage costs in 2022-23 and their proportional burden on family finances.
The impact on household budgets was neatly summarised by the Office of National Statistics, which tells us that more than 1.4mn households in the UK are facing the prospect of sizeable interest rate rises when they renew their fixed rate mortgages throughout the course of 2023.
The ONS says: "The majority of fixed rate mortgages in the UK (57 per cent) coming up for renewal in 2023 were fixed at interest rates below 2 per cent.
"Those deals that are due to mature through the course of 2024 will be from two-year fixed rate deals made in 2022 and five-year fixed rate deals made in 2019, when mortgage rates were generally higher than 2 per cent."
The effect of higher interest rates will also take some time to be fully felt.
The National Institute for Economic and Social Research, which has modelled this rollout, says: “The research paints a dire picture for millions of households. Overall, nearly 4mn households will see higher monthly mortgage repayments as a result of higher interest rates.”
The study shows that, using an interest rate calculator of 4.75 per cent, “the typical monthly repayment on a fixed rate mortgage will rise from around £700 to £1,100 on average, and from around £500 to £900 on average for those on a variable rate mortgage. That represents a 50 per cent increase.
"This £400 increase in monthly repayments will wipe out the savings of a further 1.4mn households by 2024 as a result of higher mortgage repayments. This would take the total number of households with no savings to around 7mn – that is 25 per cent or 1 in 4 UK households."
Mitigating mortgage risk, life cover and increased premature mortality
All of this presents challenges to the financial adviser as they try to help clients manage their way through this pressurised environment.
Since rising mortgage costs by definition increases mortgage debt risk, one possible area to explore is to mitigate that risk through life insurance cover.
If one partner in a family dies prematurely, and they have not arranged any life cover, the surviving partner and any children can be thrown into severe financial distress – distress that they will find it difficult to mitigate in any other way. Premature death is not simply an issue for the elderly.
Mortality has remained on the rise post-Covid. According to a variety of academic studies, long-term mortality has been increased by the pandemic.
Analysis conducted by Eurostat found that excess mortality rates across the EU rose by 19 per cent at the end of 2022, compared to the average number of deaths in the same period between 2016 and 2019.
