Bank of England warns of more mortgage pain for homeowners

  • In the Bank of England’s Financial Stability Report, the central bank said its model showed more than 2 million mortgage holders would see monthly payments increase between £200 to £499 ($259 to $645) by the end of 2026.
  • Meanwhile, nearly a million people were expected to see their monthly mortgage costs rise by more than £500 over the same time frame.
  • The bank said, however, that the amount of household debt remains “well below” the historic peak recorded in 2007.

Suburban residential properties and high-rise buildings in the outlying city of Ruskin Park, a public green space in Lambeth, on June 11, 2023, in London, England.

Richard Baker | Pictures | Getty Images

Already struggling homeowners could see monthly mortgage payments rise sharply in the coming months, the Bank of England has warned, but today’s stressed households are not as heavily indebted as they were in the run-up to the global financial crisis.

Households in the UK are currently being affected by the cost of living crisis and rising interest rates as fixed rate mortgage deals expire.

In the Bank of England’s Financial Stability Report, Published WedThe central bank said its model showed more than 2 million mortgage holders would see monthly payments increase between £200 to £499 ($259 to $645) by the end of 2026.

Meanwhile, nearly a million people were expected to see their monthly mortgage costs rise by more than £500 over the same time frame.

The Bank of England said the amount of household debt remains “well below” the historic peak reached in 2007.

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The central bank’s report comes shortly after the average two-year fixed mortgage rate in the UK rose to its highest level since 2008, deepening fears of an impending “mortgage disaster”.

The average two-year fixed deal rate rose to 6.70% on Wednesday, according to figures from data provider Moneyfacts. That prime mortgage rate came in at 6.66% on Tuesday, hitting a 15-year high.

The five-year average mortgage rate rose to 6.20% on Wednesday, Moneyfacts said, a modest increase from Tuesday but still far from the 6.51% level reached on Oct. 20.

In recent years, most homebuyers in Britain have taken out fixed-rate mortgages for a set period, usually two or five years. When the deal expires, they either move to a new fixed rate or accept a variable rate.

UK mortgage costs have risen in recent months after 13 consecutive rate hikes.

Most recently, the Bank of England raised interest rates by 50 basis points to 5% last month, which is a bigger increase than many expected. The sudden move will affect millions of homeowners as interest rates on many UK mortgages are directly linked to the central bank base rate.

Renters, too, are more likely to see their payments increase because landlords who are buying in order to let them pass on higher mortgage payments.

It comes as the Bank of England stubbornly battles high inflation, with Governor Andrew Bailey reportedly saying on Monday that the central bank should “See the job throughOn lowering prices.

Many believe that more rate hikes are inevitable in the coming months.

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“UK households are facing challenges from increasing costs of living and rising interest rates,” the bank said in the report. “As fixed-rate mortgage deals expire and households renew their mortgages, the average cost of mortgage payments will continue to increase.”

People walk outside the Bank of England in the City of London financial district, London, Britain, January 26, 2023.

Henry Nichols | Reuters

Research recently conducted by the National Institute of Economic and Social Research, a leading independent think tank estimated The recent 50 basis point increase in the Bank of England will see 1.2 million British households (4% of households nationwide) run out of savings by the end of the year due to higher mortgage payments.

NIESR said that would bring the proportion of insolvent households to nearly 30% (about 7.8 million), with the largest impact set to occur in Wales and the north-east of England.

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