Britons will spend almost a third more on their mortgages and other household debts over the next five years, according to new data, sparking fears many may struggle to cope with mounting costs if interest rates rise as predicted.
The projection, revealed by a freedom of information request to the Office for Budget Responsibility, found household debt servicing costs were set to climb 29% by 2023, the vast majority of which are likely to be mortgages.
The rise may take homeowners by surprise, given that costs fell 9% over the previous five years and also declined as a share of household income by almost a quarter due to historically low interest rates.
The Bank’s governor, Mark Carney, has said he believes the growing economy, including GDP growth and rising average wages, warrants a rise in interest rates from their low of 0.5%.
Labour’s analysis found that an average household would see an increase of £468 in annual debt costs, from £1,983 in 2018 to £2,451 by 2023.
The shadow chancellor, John McDonnell, called the figures “eye-watering increases in the potential costs faced by working families at a time when incomes are being squeezed”.
McDonnell said the figures showed a need to tackle a squeeze on earnings to combat rising costs. “We need an urgent change of direction from Philip Hammond as the real burden of debt for households is becoming increasingly heavier while he goes ahead with tax giveaways to the super-rich and big business, and continued austerity for everyone else,” he said.
“The next Labour government will cap interest on consumer credit, and introduce a £10 per hour real living wage, to help build a high-wage, high-skill economy for the many and not the few.”
However, the OBR said it would be a relatively modest increase as a percentage of a person’s disposable income over a five-year period.
“Having fallen from 6.2% to 4.2% between 2010 and 2017, the share of disposable incomes being used to service debt rises relatively modestly over the forecast from 4.1 to 4.5% between 2018 and 2023,” a spokesman said.
“The rise reflects a combination of rising mortgage debt as house prices increase, and rising interest rates on the resulting higher level of mortgage debt.”
Andrew Hood, a research economist at the Institute for Fiscal Studies, said wealthier homeowners would feel more of the burden. “The vast majority of household debt is mortgages and interest rates are widely predicted to rise over the next five years, so we shouldn’t be too surprised to see the projected debt servicing costs rising,” he said.
“Much of the cost will be borne by richer homeowners who have large mortgages and the aggregate figures don’t tell us much about other kinds of household debts such as credit card debt or rent-to-own loans.”