Nearly one million UK homeowners are expected to see their monthly mortgage payments rise by at least £500 by the end of 2026, according to a Bank of England warning. The central bank's forecasts indicate that the majority of the four million homeowners set to remortgage over the next three years will face increases of up to £220 per month by the end of this year, as they struggle to secure comparable interest rates.
Markets are increasingly betting that the Bank of England will raise interest rates to a peak of 6.25% in early 2024, from the current 5%, to combat stubbornly high inflation. The average two-year fixed mortgage rate has already risen to 6.7%, the highest level since August 2008 during the financial crisis, according to data from Moneyfacts.
Bank Governor Andrew Bailey acknowledged the impact on households, stating that higher payments are part of the trade-off in taming inflation. He emphasised the importance of balancing monetary policy transmission with banking system resilience and customer support. The Bank's financial stability report shows the proportion of households under pressure from rising mortgage payments has increased from 1.6% in November 2022 to about 2%, and is expected to reach 2.3% by year-end, affecting around 650,000 households.
However, policymakers noted that the current situation is less severe than during the 2007 financial crisis, when 3.4% of households faced hardship. Outgoing Deputy Governor Jon Cunliffe highlighted that household debt levels are significantly lower now, partly due to stricter lending regulations. The Bank expressed optimism that lenders will continue offering forbearance options, such as interest-only terms and extended mortgage lengths, to help struggling borrowers.
Smaller landlords with buy-to-let mortgages face particular strain, as many are already on interest-only plans and receive less forbearance. Higher interest rates, taxes, and regulatory changes have squeezed profits, leading some to sell properties to larger managers or pass costs to tenants through rent increases. The Bank noted a 5% rise in rents over the past year, driven by these pressures.
