Wealthy borrowers in the UK with large interest-only mortgages face a punishing jump in payments — leaving them potentially paying thousands of pounds a month more — as they come off fixed-rate deals in a rising interest rate environment.

The focus of what MPs have dubbed the country’s “mortgage time bomb” has understandably been trained on households already hit hard by the cost of living crisis, particularly on younger families who tend to have bigger outstanding loans.

But repayments on interest-only mortgages, which tend to be favoured by relatively affluent borrowers, are also forecast to increase by thousands of pounds each month as the sensitivity of the products to rate movements leads to much bigger swings in monthly costs than a capital repayment deal.

The Bank of England decided to raise interest rates a half-point last month to 5 per cent, its 13th consecutive rise. It is predicted to lift rates to 6 per cent next year in an attempt to bring down stubbornly high inflation.

One senior banker with a £1.14mn interest-only mortgage says he expects his payments to go up from £1,200 a month to £7,000 later this year and so plans to pay down part of the capital instead. In the wake of rising rates, clients have begun to change their behaviour. “I had one client who was building his own house and had all the planning permissions and was ready to go but had to pull out of this when rates went to nearly 6 per cent,” said Dean Esnard, director of Magni Finance, a mortgage broker specialising in home loans above £500,000.

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