According to the Bank of England’s twice-yearly Financial Stability Report, a further 900,000 people could see an increase of more than £500 on their mortgage repayments
Five million homeowners are set to face a £240 increase to their monthly mortgage payments the Bank of England (BoE) has warned.
According to the central bank’s twice-yearly Financial Stability Report, a further 900,000 people could see an increase of more than £500 on their mortgage repayments. The report highlighted that while households had so far proved “resilient” due to the Bank’s higher interest rates, many on fixed mortgage deals have not yet felt the full force of higher borrowing costs.
Since it started raising the base rate in December 2021, the bank said that around 55% of mortgage borrower accounts – around five million – had repriced and that a further five million would be impacted by 2026. It also added that although the average mortgage rate had come down since the Bank’s previous stability report in July they were “higher than in the recent past”.
The Bank of England’s base rate stood at 0.1% two years ago. The Bank of England’s Monetary Policy Committee (MPC) has raised the rate 14 times since then and it currently sits at 5.25%. This is a level not seen since the financial crash in 2008 which subsequently pushed mortgage rates up significantly.
The report said: “For the typical owner-occupier mortgagor rolling off a fixed rate between [April to June] 2023 and the end of 2026, their monthly mortgage repayments are projected to increase by around £240, or around 39%. As higher mortgage rates continue to flow through to UK households, the average debt servicing burden will increase.”
The Bank has estimated that the number of mortgage borrowers whose repayments would be so high that they would struggle to afford them will hit 440,000 by the end of next year. This is however lower than its previous estimates of 650,000 back in July.
The latest analysis also showed that the proportion of households’ incomes spent on mortgage payments is set to rise to 9% by the end of 2026, from 6.8% earlier this year. The report noted that households spending more than 70% of their income on their mortgage stood at 1.4% – or 400,000 – at the end of this year. The ratio is expected to rise to 1.6%, or 440,000 households, by the end of 2024.
Even with this, the Bank of England noted that the number of borrowers falling into arrears was rising for residential and buy-to-let borrowers, but stressed these were still “well below” peak levels in 2008. Going forward, the report said the UK banking system was “well capitalised” with high levels of liquidity, and “has the capacity to support households and businesses even if economic and financial conditions prove to be substantially worse than expected.”
The Bank of England’s Governor Andrew Bailey commented: “The full effect of higher interest rates has yet to come through. Therefore, we remain vigilant to financial stability risks that might arise. However, so far UK households and businesses as a whole have been resilient to the impact of higher and more volatile rates. Focusing specifically on households, finances remain stretched by the high cost of living.”
Speaking at a press conference after the Financial Stability Report publication, he added: “We recognise that there are those that are more adversely affected.”
