According to the central bank’s financial stability report, approximately 400,000 homeowners can anticipate paying over 50% more on their mortgages.
The Bank of England has announced that around three million UK households will face increased mortgage repayments over the next two years due to persistently high interest rates. According to its financial policy committee, approximately 400,000 homes are expected to experience “very large increases” of over 50%.
Interest rates have surged to a nearly two-decade high of 5.25% to curb the price increases fueling the cost of living crisis. Inflation, which had reached a 40-year high, has now fallen to the Bank’s 2% target as higher interest rates made borrowing more expensive and limited spending.
Despite the elevated base interest rate, over a third of mortgage holders (35%) are still paying a rate below 3%, according to the financial policy committee’s Thursday report. This is because they secured their mortgage deals before the energy price shocks caused by the war in Ukraine.
Once those deals come to an end, households will have to sign up to a more expensive product.
Most mortgage holders, however, have adjusted their rates since the cycle of increases began in late 2021.
According to the report, a typical household transitioning from a fixed-rate mortgage before the end of 2026 is expected to face an increase of approximately £180 per month.
The financial policy committee’s role is to ensure the UK financial system can withstand economic shocks and risks. The committee stated that UK lenders remain well-positioned to support households and businesses, even if the economy deteriorates.
Currently, interest rates are anticipated to decrease in the coming months, with cuts projected for August, September, November, and December.
However, consumers have been cautioned not to expect a return to the era of ultra-low interest rates.
Charlie Nunn, the chief executive of the UK’s largest lender, informed Sky News that the new normal for mortgage rates is between 3.5% and 4.5%.