High mortgage rates and falling house prices could leave hundreds of thousands of people in negative equity research, from The Resolution Foundation reveals.

Its report, ‘An intergenerational audit for the UK’ published last month is just one of many documents that highlight the risk to homeowners.

The Foundation says that the cost-of-living crisis is likely to have profound impacts across different age groups and generations.

INFLATION

High inflation means that the real value of take-home pay has been falling since May 2022, with the youngest employees experiencing the largest falls in real wages.

The Foundation says: “The middle-aged are most likely to be hit by higher mortgage payments, but those young homeowners that have managed to get on the housing ladder face the biggest risks from higher interest rates.

“Households headed by a 25-34-year-old face paying an additional 8% of their incomes on their mortgages on average by the end of 2026. A fall in house prices is more likely to result in young homeowners going into negative equity or high-risk loan to value ratios.”

EXPECTATIONS

Interest rates on new mortgage products have already risen to reflect recent increases in interest rates and expectations of further rate rises.

The Foundation warns: “Our recent analysis found almost 1.2 million households face immediate cost increases, as they are on variable rate mortgages, and one-in-five households will face higher mortgage costs by the end of 2024.

Those with negative equity may be unable to move house and could be forced into bankruptcy.”

“Those with negative equity may be unable to move house, as they would be unable to pay off their mortgages solely from proceeds from the sale of their house, or, if they had to sell, could be forced into bankruptcy.”

Until rates began to rise earlier this year, the Bank of England Base Rate had been below 1% for over 12 years.

Now at 3%, the Bank’s monetary policy committee is widely expected to hike rates to 3.5% when it meets on Thursday this week.