About three million UK households are still set to witness hikes in their mortgage repayments over the next two years, the Bank of England said. The Bank's Financial Policy Committee (FPC) revealed that this will include significant increases of more than 50% for the mortgages of around 400,000 households.
Household Mortgage Increases: The Bank's latest Financial Stability Report indicated that most households have already experienced an increase in their mortgage rates since borrowing costs started rising significantly in 2022. Currently, around 35% of households with mortgages, or more than three million, are paying below 3% and are expected to see a rise between now and the end of 2026. A typical household coming off a fixed-rate mortgage before the end of 2026 is expected to face an increase of approximately £180 per month.
Longer Borrowing Periods: The report also highlighted that an "increasing proportion" of households have been opting to borrow over a longer period, resulting in reduced monthly repayments but higher debt service over time.
Impact on Household Finances: Higher mortgage rates have led to many households and renters dipping into their savings, according to the Bank. The share of renters falling behind on payments rose to 16.5% in the first quarter of 2024, compared to 15.7% a year ago, following significant rent hikes year-on-year.
Financial Pressure on Renters: Survey data revealed that "many renters and low-income households plan to further deplete their savings" within the next year to cope with the rising cost of living. Despite these challenges, the Bank emphasized that the overall risk environment for the economy and financial sector remains largely consistent.
Global Concerns: While the banking sector in the UK is capable of supporting households and businesses in the face of adverse economic conditions, there are global vulnerabilities to the sector. These include "policy uncertainty" linked to upcoming elections worldwide, including those in the UK, the US, and France in the near future.