27 June 2024 , 10:35
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The Bank of England has revealed that approximately three million UK households will face increased mortgage repayments over the next two years.
The Bank's Financial Policy Committee (FPC) warned that this will include "very large increases" of more than 50% for around 400,000 households. However, the central bank stressed that UK lenders remain in a strong position to support households and businesses, even if the economic outlook deteriorates.
The Bank's latest Financial Stability Report showed that most households have already experienced an increase in their mortgage rates since borrowing costs began to rise significantly in 2022. Interest rates are currently at a 16-year high of 5.25%, with the central bank voting to maintain this figure for the seventh consecutive meeting earlier this month.
Despite this, many economists predict that rates could be reduced at the next vote in August. Currently, around 35% of households with mortgages, equating to over three million, are paying below 3% and are expected to see an increase between now and the end of 2026.
The report indicated that a typical household rolling off a fixed-rate mortgage before the end of 2026 is likely to face a jump of around £180 a month. It emphasised that an "increasing proportion" of households are opting to borrow over longer periods, reducing monthly repayments but resulting in more debt to service over time.
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The Bank has discovered that higher mortgage rates are causing a squeeze on savings for both homeowners and renters. It was noted that the proportion of renters who are behind on their payments climbed to 16.5% in the first quarter of 2024, up from 15.7% the previous year, following significant annual rent hikes.
Survey findings also indicate that "many renters and low-income households intend to run down their savings even further" over the next twelve months to cope with rising living costs. Despite the strain on household finances, the central bank has emphasised that the overall risk landscape for the economy and financial sector remains largely stable.
The Financial Policy Committee (FPC) assures that the banking sector "has the capacity to support households and businesses even if economic and financial conditions were to be substantially worse than expected".
However, the sector does face "global vulnerabilities", including "policy uncertainty" tied to forthcoming elections in key countries such as the UK, the US, and France.