The Bank of England has warned that around three million households in the UK can expect to see an increase in their mortgage payments over the next two years. Of this, 400,000 mortgage holders are forecast to be hit by “very large” payment increases. Rising interest rates and the higher cost of living were cited as contributing factors. Meanwhile, banks are said to still be in a good position to assist both businesses and households.
A third of all mortgage holders are currently paying rates of less than 3%. The majority of these mortgages will expire before the end of 2026. Therefore, those who have enjoyed fixed rate mortgage deals which pre-date the late 2021 interest rate increases are likely to be affected by the payment hikes. Month-on-month mortgage repayments are set to rise by an average of £180, with the payments of 400,000 households anticipated to jump by 50% or more.
In spite of these increases, the Bank affirmed that the effects on the home loan market are unlikely to have significant risks on the UK financial system. The report indicates that households have remained resilient to the higher rates while struggling to contend with the cost of living.
The news came after three of the UK’s main lenders reduced their mortgage rates following indications that a summer interest rate cut might be forthcoming from the Bank of England. NatWest, Barclays, and HSBC all cut the costs of fixed-rate home loans for new deals this week. Nevertheless, the report highlighted the proportion of individuals incapacitated to keep up with rental payments has increased from 15.7% to 16.5%. This is due to the landlords distributing the cost of higher mortgage interest rates onto their tenants. Consequently, the higher rent has further eroded the “savings buffers for renters and low-income households.” Despite the pressure being applied to renters, they are still seven times less likely to be in serious arrears than homeowners
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