Million households face £500 a month mortgage hike, Bank of England warns

12 July 2023, 10:37

Nearly a million mortgage holders will see their monthly repayments jump by £500 or more in the coming years, the Bank of England has warned.

The grim impact of soaring interest rates was underlined in the latest financial system 'stress test' by the bank.

The Financial Stability Report highlighted evidence that borrowers were already looking at longer repayment terms to bring down bills, as well as switching to interest-only.

Renters are also seeing extra financial hardship as landords push up charges to cover their own ballooning costs.

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The bank said its models suggested a sharp leap in mortgage costs for many households across the country as the impact of higher interest rates feed through.

However, it said that despite this sharp increase in the mortgage burden, the share of total households with high mortgage burdens - in other words relative to their incomes - remains well below the 2008 peak.

And it said it would take another 3 percentage point increase in interest rates for that burden to exceed that peak.

The average household will see their monthly interest payments go up by about £220 if they are refinancing during the second half of this year and see their rate go up by about 3.25 percentage points.

Around a million people could see repayments soar by at least £500 a month by the end of 2026.

Some four million fixed-rate mortgage holders are still set to face a hike in borrowing costs between now and the end of 2026.

The Bank said: "Although the proportion of income that UK households overall spend on mortgage payments is expected to rise, it should remain below the peaks experienced in the global financial crisis and in the early 1990s.

"UK banks are in a strong position to support customers who are facing payment difficulties. This should mean lower defaults than in previous periods in which borrowers have been under pressure."

'Further deterioration of households' finances, including higher mortgage or rental payments, could increase pressures on households, potentially leading to higher consumer credit arrears or default rates.' the Bank cautioned.