Two people walk alongside colorful houses in London, UK, 19 May 2023. (Reuters)

Around 1.6 million British households will face a £2,300 increase in mortgage payments after interest rates surged amid a current housing crisis in the UK, according to a report by Resolution Foundation.

The UK-based think tank that examined living standards in the country said that around half of the 7.5 million households have seen changes in their mortgage payments so far, which is the direct result of the Bank of England (BoE) announced increases in December 2021 that mainly affected smaller borrowers and young people.

The BoE, in an attempt to curb inflation rates in the country from 10.1% to a 2% target, raised interest rates from 4.25% to 4.5%. Homeowners, who are currently paying back their mortgage loans, will experience the effects of the policy as soon as the mortgage terms expire as they will need to renew their fixed-rate payments for another period.

A senior economist at the Resolution Foundation, Simon Pittaway, stressed that even though interest rate increases are projected to be halted, the larger part of households will experience increases in mortgages.

"Two-thirds of the 12 billion pounds a year increase in mortgage costs that British households face as a result of rising rates is still to come," Pittaway said to Reuters.

The expert added, "People moving on to a new fixed-rate deals over the next year can expect to see their annual mortgage costs rise by an eye-watering 2,300 pound-with young families and low-and middle-income households with mortgages facing the biggest living standards."

"People moving on to new fixed-rate deals over the next year can expect to see their annual mortgage costs rise by an eye-watering £2,300 — with young families and low- and middle-income households with mortgages facing the biggest living standards hits," the economist explained.

Moreover, Resolution Foundation revealed that from 2016 to 2022, a greater amount of homeowners opted for five-year deals rather than the usual two-year deals when choosing options for their mortgage payments as they faced the most rapid rise in interest rates in more than 30 years.

The think tank also showed that fixed-term mortgages have taken up the largest share of loans in the past year as they accounted for nine of every 10 pounds lent in 2022 compared to 4 of 10 pounds before the global financial crisis ensued.

"Higher borrowing costs have hurt demand for new loans," a Bloomberg report underscored.

"UK mortgage approvals fell in January to the lowest level and house prices are also falling at the sharpest pace since 2009," the news agency noted.