Almost five million UK homeowners are set to see their mortgage repayments surge by hundreds of pounds over the next three years, the Bank of England has warned.
The central bank said it comes as rising interest rates have heightened risks in the global financial markets.
However, the Bank’s Financial Policy Committee (FPC) has found that British banks are strong enough to support households and businesses even if economic conditions get significantly worse.
Around half of mortgage holders have moved to a new fixed-rate deal since interest rates started rising in late 2021, amounting to more than five million households.
A further five million homeowners are due to face higher borrowing costs by the end of 2026, the report warns
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But, there are still a further five million homeowners who are due to face higher borrowing costs by the end of 2026, the FPC said in its latest Financial Stability Report.
The Bank of England’s Monetary Policy Committee (MPC) has hiked interest rates 14 times in nearly two years, increasing the base rate from 0.1 per cent in early December 2021 to the current 5.25 per cent rate – a level not seen since 2008.
A typical mortgage holder who comes off a fixed rate between the second quarter of 2023 and the end of 2026 is projected to face a £240 increase in their monthly repayments.
Around 500,000 households could be hit with a monthly hike of more than £500 by the end of 2024.
The FPC said higher borrowing costs have led to mortgage arrears increasing slightly, and more people could fall behind on their payments in the coming years.
However, the report said the UK banking system is well capitalised, has 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”.
Bank of England governor Andrew Bailey said: “While the full effect of higher interest rates have yet to come through, borrowers on the whole have been resilient to these changes.”
Speaking at a press conference after the Financial Stability Report publication, he added: “We recognise that there are those that are more adversely affected.”
Mr Bailey said borrowers falling into arrears was rising for residential and buy-to-let borrowers, but stressed it was still “well below” peak levels in 2008.
Meanwhile, first-time buyer households with lower earnings are needing to find deposits averaging almost double their annual income to meet affordability requirements, according to a banking and finance industry body.
High house prices and high mortgage rates are squeezing affordability.
First-time buyers with a combined household income of less than £50,000 are putting down around 194 per cent of their annual income as a deposit, compared with around 110 per cent for those with an income of between £50,000 and £100,000, according to UK Finance data.
Robert Johnson is a UK-based business writer specializing in finance and entrepreneurship. With an eye for market trends and a keen interest in the corporate world, he offers readers valuable insights into business developments.
