Mortgage Repayments Set to Rise for Three Million Households
The Bank of England has warned that around three million UK households will see their mortgage repayments rise over the next two years as high interest rates continue to take effect. This increase is expected to have a significant impact on many families, with as many as 400,000 homes likely to experience “very large increases” of more than 50%.
The Rise of Interest Rates
Interest rates have been brought to a near two-decade high of 5.25% in an effort to clamp down on price rises behind the cost of living crisis. This increase in interest rates has made borrowing more expensive and limited spending, which has in turn helped to bring inflation down to the Bank’s 2% target.
The impact of rising interest rates on mortgage repayments
The Effect on Mortgage Holders
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 because they signed up for a deal before the energy price shocks which resulted from the war in Ukraine. Once these deals come to an end, households will have to sign up to a more expensive product.
Most mortgage holders, however, have repriced since mortgage rates started the cycle of increases late in 2021. A typical household rolling off a fixed-rate mortgage before the end of 2026 is due to face a jump of around £180 a month, according to the report.
Mortgage rates have been on the rise since 2021
The Financial Policy Committee’s Role
It is the job of the financial policy committee to ensure the UK financial system can handle economic shocks and risks. The body said UK lenders are still in a strong position to support homes and businesses, even if the economy worsens.
The financial policy committee plays a crucial role in maintaining financial stability
Interest Rate Forecast
At present, interest rates are expected to come down in the coming months, with a cut forecast for August, September, November, and December. However, consumers have been warned not to expect a return to the era of ultra-low interest rates.
Interest rates are expected to come down in the coming months
The New Normal for Mortgage Rates
The chief executive of the UK’s largest lender, Charlie Nunn, told Sky News that the new normal is mortgage rates of 3.5% to 4.5%. This is a significant shift from the ultra-low interest rates seen in recent years, and households will need to adjust to this new reality.
Mortgage rates are expected to remain high in the coming years