Bank Predicts Mortgage Costs to Increase for 3 Million Homeowners

The Bank of England reports rising mortgage and rent costs impacting household savings and financial resilience, while UK banks remain well-positioned to support despite global uncertainties.

According to the Bank of England, approximately three million households will experience an increase in their mortgage payments over the next two years. The Bank’s latest Financial Stability Report also revealed that about 400,000 mortgage holders will face some “very large” payment hikes. Renters continue to feel the strain from the rising cost of living and higher interest rates, the report found. However, the Bank noted that overall risks to the UK financial system remain broadly unchanged, and both businesses and households are showing resilience.

The Bank of England found that about one-third of UK mortgage holders, over three million people, are still paying rates below 3%. These individuals mostly secured their mortgage deals before the Bank of England began raising interest rates in late 2021. As these mortgages expire, the Bank noted that most fixed-rate deals will end by the end of 2026.

For the average household, monthly mortgage repayments are expected to increase by around £180, or approximately 28%. However, about 400,000 households could see their monthly payments rise by 50% or more. Despite this, the number of people struggling to pay their mortgages is projected to remain below the levels seen after the 2008 global financial crisis.

“The overall share of households who are behind in paying their mortgages remains low by historical standards,” the Bank stated.

This report follows recent moves by three major lenders—HSBC, NatWest, and Barclays—to reduce mortgage rates, anticipating a potential interest rate cut by the Bank of England later this summer.

The Bank’s report found that the proportion of people falling behind on rental payments has increased from 15.7% to 16.5%. This rise is attributed to landlords passing on the higher mortgage interest rates to their tenants. Consequently, higher rents have further eroded the “savings buffers for renters and low-income households” over the six months leading up to the end of March this year.

The report also indicated that many renters and lower-income households plan to deplete their savings even more in the coming year to cope with the increased cost of living, making these groups less financially resilient. Despite these challenges, the Bank stated that UK banks are still well-positioned to support businesses and households.

“The UK banking system has the capacity to support households and businesses, even if economic and financial conditions were to be substantially worse than expected,” the report said. However, the Bank also highlighted some “global vulnerabilities,” including political uncertainty in the UK and abroad, which could impact the sector. It noted that upcoming elections worldwide could “lead to financial market volatility.”