Mortgage Repayments on the Rise: A Looming Crisis for UK Households?

As the Bank of England continues to grapple with the cost of living crisis, a new threat has emerged on the horizon: rising mortgage repayments. According to the Bank’s financial policy committee, a staggering three million UK households will see their mortgage repayments increase over the next two years as high interest rates take effect.

Mortgage rates are on the rise, leaving many households feeling the pinch.

The impact will be felt most severely by those who signed up for mortgage deals before the energy price shocks resulting from the war in Ukraine. These households will soon be forced to switch to more expensive products, leading to a significant increase in their monthly repayments. In fact, the Bank of England estimates that a typical household rolling off a fixed-rate mortgage before the end of 2026 will face a jump of around £180 a month.

Interest rates have been hiked to combat inflation, but at what cost to households?

Despite the higher base interest rate set by the Bank, more than a third of mortgage holders (35%) are still paying a mortgage rate of less than 3%. However, this is likely to change as the effects of the interest rate hike begin to take hold.

“The new normal is mortgage rates of 3.5% to 4.5%,” warns Charlie Nunn, chief executive of the UK’s largest lender. This is a far cry from the era of ultra-low interest rates that many households have grown accustomed to.

Mortgage holders are bracing themselves for a significant increase in their monthly repayments.

So what does this mean for UK households? The answer is simple: it’s time to start budgeting. With mortgage repayments set to rise, households will need to make some tough decisions about where to cut back on spending. For some, this may mean sacrificing non-essential items or finding ways to increase their income. For others, it may mean considering more drastic measures, such as downsizing or relocating to a more affordable area.

Households will need to get creative with their budgeting to cope with rising mortgage repayments.

As the Bank of England continues to navigate the complex landscape of interest rates and inflation, one thing is clear: UK households are in for a bumpy ride. With mortgage repayments set to rise, it’s more important than ever for households to take control of their finances and start planning for the future.

“The era of ultra-low interest rates is behind us. It’s time for households to adapt to the new normal.” - Charlie Nunn, chief executive of the UK’s largest lender