Mortgage costs to rise by 3 million, says Bank of England – BBC News

Around three million households will see their mortgage costs rise over the next two years, the Bank of England has said.

The Bank’s latest Financial Stability Report also states that around 400,000 mortgage holders are facing some “very large” payment increases.

Renters also remain under pressure from higher costs of living and higher interest rates, the report found.

However, the Bank said that overall risks to the UK financial system remained largely unchanged, and that businesses and households remained resilient to the impact of higher interest rates.

The bank discovered that around a third of mortgage holders in the UK, more than three million, are still paying interest of less than 3%.

These will mainly be people who entered into mortgage agreements before the Bank of England started raising interest rates at the end of 2021.

These mortgages are now maturing and the Bank said the majority of fixed rate contracts will expire before the end of 2026.

For the average household, monthly mortgage repayments are expected to increase by around £180, or around 28%.

However, for about 400,000 households, monthly payments could increase by 50% or more.

Despite this, the number of people struggling to pay their mortgages is still expected to remain below levels seen after the 2008 global financial crisis.

“The total number of households behind on their mortgage payments remains historically low,” the Bank said.

The report comes after three major lenders started cutting mortgage rates this week, following indications of a summer rate cut by the Bank of England.

HSBC, NatWest and Barclays have all cut the cost of fixed-rate home loans for new deals.

“The harsh reality is that many people have not yet gotten rid of the ultra-low rates [and move] on to the higher rates available today. If they do there will be a major payment shock,” says Emma Jones of mortgage broker When The Bank Says No.

‘Although major lenders have cut interest rates across the board this week, [rates] are still much higher than what many people are paying now. The irony is that the Bank of England has the power to help the very people it is talking about.”

The Bank’s report shows that the share of people with rent arrears has increased from 15.7% to 16.5%.

This is said to be the result of landlords passing on the costs of higher mortgage interest to their tenants.

Higher rents have led to further erosion of “savings buffers for renters and low-income households” in the six months to the end of March this year.

It also said research found that many renters and lower-income households “plan to reduce their savings even further in the coming year to cope with increased costs of living, making these groups less financially resilient” .

Overall, the Bank said UK banks are still well placed to help businesses and households.

“The UK banking system has the capacity to support households and businesses even if economic and financial conditions were significantly worse than expected,” the report said.

The Bank highlighted some “global vulnerabilities”, including political uncertainty in the UK and beyond, that could impact the sector.

According to the organization, the upcoming elections “could lead to volatility in financial markets” worldwide.

Although the Bank said risks to the UK financial system were “broadly unchanged” since the first three months of the year, prices of assets such as shares and bonds have continued to rise.

Investors “place less weight on risks, such as geopolitical developments or persistently high inflation,” the report said.

It warned that these risks “make it more likely that there could be a sharp correction in asset prices, which could ultimately make it more expensive and difficult for UK households and businesses to borrow”.