The Bank of England has warned that more than five million British homeowners are facing higher mortgage bills when they renew, driven by increased pressure linked to the Iran war. This represents around one million more homeowners than previously predicted.
Updated Projections from the Financial Stability Report
In a previous report last December, the Bank had estimated that 3.9 million, or around 43% of mortgage owners, were set for increases upon renewal. However, the Bank's fresh Financial Stability Report on Tuesday revealed that 'a little over five million households' are now projected to see increases by the end of 2028.
The data indicates that the average homeowner with a mortgage rolling off a fixed rate in the next two years will face a £45 increase in their monthly payments. Additionally, almost 750,000 households currently paying less than 3% interest will roll off their fixed-rate mortgages in 2026 and face an average increase of £170 per month.
Rising Mortgage Rates and Economic Pressures
The report showed that the average rate for a two-year fixed mortgage with a 75% loan-to-value is now 4.92%. This is 0.72 percentage points higher than at the time of the Bank's previous financial stability report in December. The Bank noted that higher borrowing costs and energy prices 'could place additional pressure on household finances,' but stressed that household debt levels will still remain below previous peaks.
The value of outstanding mortgage balances with arrears jumped by just over 50% in the fourth quarter of 2023 compared with a year earlier, according to Bank of England figures. Despite these challenges, the Bank emphasised that UK households and corporate debt levels are still low compared to historical averages and are resilient to potential shocks.
