OBR forecasts household debt servicing costs to double from £73bn to a staggering £151bn in 2026 – higher than the 2008/2009 crisis
- Typical household to pay £5,350 servicing debts after a string of interest rate rises
- Families will be forced to fork out an extra £230 a month, compared to Hunt’s measly £40 a month NICs cut
It’s no wonder more of us are feeling the pinch in 2023. The cost of mortgage rate rises within the Office for Budget Responsibility’s (OBR) Autumn Statement documents have been reported to be much higher than expected. The OBR has forecast total household servicing costs to rise from £73bn in 2023 to £151bn in 2026.
With mortgages the most common source of household debt, the new findings show the impact of consecutive Bank of England interest rate rises. The £151bn cost of servicing debts in 2026 is higher than the peak of 2008, when it was £98.3bn.
The typical household will soon be spending £5,350 per year to service their debts, including mortgages, according to an analysis carried out by the Liberal Democrats. This equates to £230 extra a month in debt costs, compared to the £40 savings in National Insurance Contributions following the Chancellor’s announcement today.
Separate figures from the OBR also reveal that families will pay more than double in mortgage interest by the end of 2024 compared to 2022.
The Liberal Democrats have called the figures “a horror show”, revealing Brits will be hit hardest by mortgage rate rises in the years to come with millions of fixed-rate mortgage deals coming to an end.
“This is a horror show for Brits,” says Liberal Democrat Treasury Spokesperson Sarah Olney MP.
“There is no end in sight to the mortgage nightmare faced by millions.,” she says.
Continuin, “Not only have household finances been clobbered by a barrage of tax rises, but now they face household debts not seen since the financial crisis.
“This is the true cost of the Conservative government crashing the economy with their botched budget. The Liz Truss hangover continues to cripple the British economy and people’s wallets.”
Olney opines that any tax cuts before the election will be “more than cancelled out by the mortgage bombshell.”
How freelancers can better prepare for high mortgage debt
Freelancers are often responsible for their own retirement savings, and mortgage debt can make it difficult to put aside enough money for the future. They also have to be prepared when lenders may be hesitant to give business loans to freelancers with high levels of mortgage debt.
Mortgage debt can be a major source of stress and anxiety for freelancers, which can take a toll on their mental and physical health. Despite these challenges, there are a number of things that UK freelancers can do to manage their mortgage debt and reduce its impact on their finances.
Pay-yourself-first budget method
By setting up a pay-yourself-first budget you will prioritise saving for future goals, such as retirement or investments, before allocating funds for everyday expenses. This approach helps individuals avoid overspending and ensures that savings are prioritised.
This savings method has been proven to work than others because money is already earmarked and can’t be spent. It also gives you a feeling of satisfaction that you are taking care of yourself, which improves self-worth and goal achievement where money can be concerned. However, you will also have to consider the following actions, too, some of which freelancers may already be carrying out:
- Creating a budget and sticking to it: This will help freelancers track their income and expenses and ensure that they can make their mortgage payments each month.
- Building an emergency fund: Even if it is £50 per month, this will provide freelancers with a financial cushion in case their income decreases or they face unexpected expenses, like car repairs, vet bills or a broken boiler.
- Shopping around for the best mortgage deal: This can help freelancers save money on their interest payments and reduce their overall debt burden. Going to a mortgage broker that specialises or understands self-employed applicants is a good option to consider.
- Considering refinancing their mortgage: If interest rates have fallen, freelancers may be able to save money by refinancing their mortgage to a lower rate. Sign up for alerts from sites like Money Saving Expert or Which?
- Seeking professional financial advice: A financial advisor can help freelancers develop a plan for managing their mortgage debt and achieving their financial goals.