The Bank of England has stated that approximately three million UK households are expected to experience increases in their mortgage repayments over the next two years.
This will include “very large increases” of more than 50 percent for the mortgages of around 400,000 households, according to the Bank’s Financial Policy Committee (FPC).
However, the central bank emphasised that UK lenders remain in a robust position to support households and businesses, even if the economic situation deteriorates.
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.
However, many economists have forecasted that they could lower rates at the next vote in August.
At present, 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 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, higher mortgage rates have triggered significant savings reductions among households and renters. 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. 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”. 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.
