The Institute for Fiscal Studies (IFS) said it was an "eyewatering" prospect in a "serious shock" for the market, with 8.5 million people potentially having to spend a fifth of their income on mortgage payments.

It issued the warning as Bank of England policymakers prepare to raise the base rate again to tackle inflation in the UK economy.

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The monetary policy committee was widely expected, before the release of the latest inflation data on Wednesday, to opt for a 0.25 percentage point increase - its 13th consecutive hike - to 4.75% on Thursday.

However, the fact that it came in hotter than expected has meant financial market participants are now split on whether the rise will be sharper - taking Bank rate to 5%.

The inflation data, coupled with a surge in basic pay, has driven up expectations over the past month that the Bank will have to maintain its rate rises for longer than anticipated, to possibly as high as 6%.

That has made funding costs more expensive over the past few weeks, forcing mortgage lenders to reprice their home loan offerings and making them more expensive in the process.

It prompted a warning from the Resolution Foundation at the weekend that average annual mortgage repayments were set to rise by £2,900 for those renewing next year.

Since March 2022, the average two-year fixed rate mortgage has risen from 2.65% to beyond 6%.

The IFS research suggested that if rates remained that high, at levels not seen for almost 15 years currently, those in their 30s faced the greatest pain.

It said that around 1.4 million mortgage holders - half of whom are under 40 - would see their payments rise by at least 20% of their disposable income.

People in London and southern England would see the biggest hits to their disposable incomes in percentage terms, the report said, because loan values were higher relative to earnings.

"After this rise, around 60% of the 14 million with a mortgage (i.e. 8.5 million adults) will spend at least a fifth of their income on mortgage payments", the study concluded.

"This is a substantial increase. In March 2022, only 36% of those with a mortgage (5.1 million) paid at least this much of their incomes."

Surging mortgage costs have prompted calls for government aid but Chancellor Jeremy Hunt has ruled that out for fear that handouts would only feed inflation by placing more money in people's pockets.

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He told MPs on Tuesday that he would be meeting principle mortgage lenders later this week to ask what help they can give to struggling borrowers.

IFS research economist Tom Wernham said: "Many families bought homes - often with sizable mortgages - when
interest rates were very low. As people's fixed term offers come to an end they are going to be exposed to much higher interest rates.

"For many, the increase in monthly repayments is going to come as a serious shock - on average it will be equivalent to seeing their disposable income fall by around 8.3%. And for 1.4 million mortgage holders - half of whom are under 40 - mortgage payments are set to rise by an eyewatering 20% of disposable income or more.

"Given the cost of living pressures people are already facing due to high food and energy price inflation, these significant increases in mortgage costs could not come at a worse time."