Mortgage Costs to Jump for 3 Million Households, Warns Bank of England

The Bank of England has warned that approximately three million UK households are set to witness significant hikes in their mortgage repayments over the next two years. This includes “very large increases” of more than 50% for the mortgages of around 400,000 households.

Mortgage rates have been on the rise since 2022

Despite the looming threat of increased mortgage costs, the central bank has stressed that UK lenders are still in a strong position to support households and businesses, even if the economic backdrop worsens. The Bank’s Financial Policy Committee (FPC) has highlighted that most households have already had an increase in their mortgage rates since borrowing costs began rising substantially in 2022.

Interest rates are currently at a 16-year-high of 5.25%, with the central bank voting to maintain the figure for a seventh consecutive meeting earlier this month. However, many economists have predicted they could reduce rates at the next vote in August.

Mortgage repayments are set to increase for millions of households

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. The Bank has also highlighted that an “increasing proportion” of households have been choosing to borrow over a longer period of time, reducing monthly repayments but leaving them with more debt to service over time.

Higher mortgage rates have resulted in many households and renters reducing their savings, the Bank found. The share of renters falling behind on payment increased to 16.5% in the first quarter of 2024, compared with 15.7% a year ago, after significant increases in rents year-on-year.

“Many renters and low-income households intend to run down their savings even further” in the next year to deal with the increased cost of living.

The central bank has stressed that, despite pressure on household finances, the overall risk environment for the economy and financial sector is broadly unchanged. 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 Bank of England has warned of global vulnerabilities in the financial sector

However, there are “global vulnerabilities” for the sector, including “policy uncertainty” associated with upcoming elections across the world, including in the UK, the US, and France in the coming months. Financial markets also face the risk of a “sharp correction” to asset prices, which have risen sharply in recent years.

The report highlighted that high inflation or geopolitical changes could trigger a sell-off which could impact prices.

Financial markets face the risk of a sharp correction