Around three million households are set to see their mortgage payments rise in the next two years, according to the Bank of England’s latest Financial Stability Report.

The report found that around 400,000 mortgage holders face some very large payment increases. The Bank found that around a third of mortgage holders in the UK are still paying rates of less than 3%, having agreed deals before base rates started to climb in December 2021, but the majority of fixed rate deals will finish before end of 2026. While the typical household is forecast to see a 28% increase in monthly mortgage repayments, around 400,000 households could see monthly payments jump by 50% or more.

The report found that households who spend ‘a high proportion’ of their incomes on mortgage payments are expected to ‘increase slightly over the next two years.’ The Banks base rate has remained at a 16-year high of 5.25% since last August. The last time the central bank cut rates was in March 2020.    

However, the report forecasts that home loan debt ‘is likely to remain well below pre-global financial crisis levels. Mortgage arrears remain low by historical standards and are expected to remain well below their previous peaks.’

Karim Haji, Global and UK Head of Financial Services at KPMG, said “While there are signs that a brighter economic outlook is starting to feed through to resilient consumers and businesses, the Bank of England’s report shows high borrowing costs still pose a threat to the stability of the financial system. The good news is UK banks are in rude health, with strong capital and liquidity positions allowing them to support people even if the economy does worse than expected. It is incumbent on them to continue supporting vulnerable customers.”

Source: Credit Connect