Around three million households in the UK are set to see their mortgage payments increase over the next two years, according to the Bank of England’s latest Financial Stability Report. The report highlights significant financial challenges for many homeowners as fixed-rate mortgage deals come to an end.
Significant Increases in Mortgage Payments
The Bank of England’s report indicates that approximately 400,000 mortgage holders will face substantial payment increases. A third of UK mortgage holders are currently paying rates below 3%, having secured deals before base rates began to rise in December 2021. However, the majority of these fixed-rate deals will expire by the end of 2026, leading to a forecasted average increase of 28% in monthly mortgage repayments. Alarmingly, around 400,000 households could see their monthly payments surge by 50% or more.
Impact on Household Budgets
Households that spend a high proportion of their income on mortgage payments are expected to increase slightly over the next two years. The Bank’s base rate has remained at a 16-year high of 5.25% since August last year, with the last rate cut occurring in March 2020. These rising costs are expected to place additional strain on household budgets, especially for those nearing the end of their current mortgage deals.
Mortgage Arrears and Financial Stability
Despite the anticipated increases in mortgage payments, the report forecasts that home loan debt levels will remain well below pre-global financial crisis levels. Mortgage arrears are low by historical standards and are expected to stay well below previous peaks, indicating a degree of resilience in the housing market.
Industry Insight
Karim Haji, Global and UK Head of Financial Services at KPMG, provided some context on the findings:
“While there are signs that a brighter economic outlook is starting to feed through to resilient consumers and businesses, the Bank of England’s report shows high borrowing costs still pose a threat to the stability of the financial system. The good news is UK banks are in rude health, with strong capital and liquidity positions allowing them to support people even if the economy does worse than expected. It is incumbent on them to continue supporting vulnerable customers.”
Conclusion
The upcoming increases in mortgage repayments for millions of households underline the ongoing financial challenges in the UK housing market. While the overall stability of the financial system appears robust, the individual impact on households will be significant, particularly for those facing large jumps in their monthly payments. Support from banks and financial institutions will be crucial in navigating this period and ensuring that vulnerable customers are protected.
