Nearly five million UK homeowners are expected to see their mortgage repayments rise by hundreds of pounds over the next three years, the Bank of England has warned.
The central bank said that this comes at a time when rising interest rates have increased risks in global financial markets.
However, the bank’s Financial Policy Committee (FPC) has found that UK banks are strong enough to support households and businesses even if economic conditions worsen significantly.
About half of mortgage holders have moved to a new fixed-rate deal since interest rates started rising in late 2021, reaching more than five million households.
The report warns that another five million homeowners are set to face higher borrowing costs by the end of 2026.
GT
But there are still another five million homeowners who are set to face higher borrowing costs by the end of 2026, the Financial Policy Committee said in its latest financial stability report.
The Bank of England’s Monetary Policy Committee raised interest rates 14 times in nearly two years, increasing the base interest rate from 0.1 percent in early December 2021 to the current rate of 5.25 percent – a level not seen since 2008.
The typical mortgage holder taking out a fixed interest rate between the second quarter of 2023 and the end of 2026 is expected to face a £240 increase in monthly repayments.
Around 500,000 households could be affected by a monthly increase of more than £500 by the end of 2024.
Rising borrowing costs have led to a slight increase in mortgage arrears, and more people may default on their repayments in the coming years, the Financial Policy Committee said.
However, the report said the UK banking system is well capitalized, has high levels of liquidity, and “has the capacity to support households and businesses even if economic and financial conditions prove to be much worse than expected.”
Bank of England Governor Andrew Bailey said: “Although the full impact of higher interest rates has not yet been realised, borrowers have generally been able to withstand these changes.”
Speaking at a press conference after the publication of the financial stability report, he added: “We realize that there are those who are more negatively affected.”
Bailey said borrowers in arrears were on the rise for residential and buy-to-let borrowers, but stressed it was still “well below” peak levels in 2008.
More to follow…