Mortgage Time Bomb: 3 Million Households Face Rate Hikes of Up to 50%

The Bank of England has warned that three million UK households are expected to experience increases in their mortgage repayments over the next two years, with 400,000 facing 'very large increases' of more than 50 percent.

Mortgage Rates Set to Surge: 3 Million Households to be Affected

The Bank of England has warned that approximately three million UK households are expected to experience increases in their mortgage repayments over the next two years. This includes ‘very large increases’ of more than 50 percent for the mortgages of around 400,000 households.

Mortgage rates are on the rise

The central bank emphasized that UK lenders remain in a robust position to support households and businesses, even if the situation in the economy deteriorates. However, many economists have forecasted that interest rates could lower at the next vote in August.

Currently, around 35 percent of households with mortgages, equating to more than three million, are paying below three percent and are anticipated to see an increase between now and the end of 2026. A typical household coming off a fixed-rate mortgage before the end of 2026 is expected to face a jump of around £180 a month, according to the report.

The Impact on Households

The report also pointed out that an ‘increasing proportion’ of households have been opting to borrow over a longer period of time, which reduces monthly repayments but leaves them with more debt to service over time. Having examined the latest figures, the Bank states that higher mortgage rates have triggered significant savings reductions among households and renters.

Savings are taking a hit

The percentage of renters who are in arrears with their payments has elevated to 16.5 percent in the first quarter of 2024, compared to a lower proportion of 15.7 percent during the same period a year ago, following substantial yearly rent increases. Survey findings also underscore that ‘many renters and low-income households intend to run down their savings even further’ in the forthcoming year as they grapple with escalating living costs.

A Stable Financial Sector

Despite the strain on household budgets, the central bank underscores that the general risk landscape for both the economy and financial sector remains largely stable. The FPC maintains that the banking sector ‘has the capacity to support households and businesses even if economic and financial conditions were to be substantially worse than expected’.

The financial sector remains stable

However, ‘global vulnerabilities’ lie ahead for the sector, including looming ‘policy uncertainty’ linked with imminent elections worldwide, particularly in the UK, the US, and France.

‘Many renters and low-income households intend to run down their savings even further’ in the forthcoming year as they grapple with escalating living costs.

The Bank’s latest Financial Stability Report revealed that most households have already seen an increase in their mortgage rates since borrowing costs began to rise significantly in 2022. Interest rates currently stand at a 16-year-high of 5.25 percent, with the central bank deciding to maintain this figure for a seventh consecutive meeting earlier this month.

Interest rates remain high