Homeowners are being urged to review their mortgage arrangements after the Bank of England warned that higher borrowing costs could add further strain to household budgets. The central bank's latest report projects average annual mortgage payments could be around £1,500 higher by the end of 2029 than before the recent rise in energy prices.
The warning follows the Bank's decision to increase the base rate to 4 per cent on November 5, driven by concerns over inflation and rising energy costs. Its November Monetary Policy Report indicates average annual mortgage payments are projected to be roughly £700 higher by the end of 2029 than forecast in July, and £1,500 higher than before the conflict in the Middle East.
Pressure on Household Finances
Chris Hewitson, VP of Credit and Data at Selina Finance, said: "Rising mortgage rates can put considerable pressure on household finances, particularly for homeowners who secured their existing deal when interest rates were much lower." He advised borrowers to check when their current agreement expires and whether early repayment charges apply before making any decisions.
"Planning ahead is particularly important because homeowners approaching the end of a fixed-rate deal may be able to secure a new rate several months before their current agreement finishes," he added. Borrowers may be able to arrange a new deal with their existing lender, but should compare this with offers elsewhere rather than assuming it is the cheapest option. Fees and the total cost over the mortgage term also need to be considered, not just the headline interest rate.
Options for Borrowers
Another possibility is extending the mortgage term to reduce monthly repayments, although this generally means paying more interest overall. Mr Hewitson explained: "For some households, extending the mortgage term could provide some breathing room by spreading repayments over a longer period." He also advised homeowners to consider whether occasional overpayments could be affordable, as reducing the outstanding balance may lower the interest charged over time. However, borrowers should check their lender's limits and avoid using money they may need for emergencies.
The government's Mortgage Charter also offers temporary support to eligible borrowers with participating lenders who are up to date with their payments. Options include switching to interest-only payments for six months or extending the mortgage term, with the option to return to the original term within six months.
Support and Next Steps
The Financial Conduct Authority says the Charter's commitments cover around 90 per cent of the mortgage market, although the options do not apply to buy-to-let mortgages. Borrowers should be aware that monthly payments may be higher after temporary support ends and the overall cost of borrowing can increase.
Mr Hewitson urged anyone worried about keeping up with repayments to contact their lender before falling behind. He said: "One of the biggest mistakes homeowners can make is leaving it too late."
