Millions of households across Britain will see huge hikes in mortgage repayments over the next two years, according to a report by the UK’s central bank.
Three million households will see an increase between now and the end of 2026, with around 400,000 homeowners seeing a rise of more than 50 per cent in their payments, the Bank of England said.
A typical household rolling off a fixed-rate mortgage before the end of 2026 will also face a jump of around £180 a month.
Interest rates are at a 16-year-high of 5.25 per cent, with the central bank voting to maintain the figure for a seventh consecutive meeting earlier this month.
It highlighted that an “increasing proportion” of households have been choosing to borrow over a longer period of time, reducing monthly repayments but leaving them with more debt to service over time.
The bank added that the share of renters falling behind on payments increased to 16.5 per cent in the first quarter of 2024, compared with 15.7 per cent a year ago, after significant increases in rents year-on-year.
Survey data also found that “many renters and low-income households intend to run down their savings even further” in the next year to deal with the increased cost of living.
The central bank stressed that, despite pressure on household finances, the overall risk environment for the economy and financial sector is broadly unchanged.
The banking sector “has the capacity to support households and businesses even if economic and financial conditions were to be substantially worse than expected”, according to the bank.
But there are “global vulnerabilities” for the sector, including “policy uncertainty” associated with upcoming elections across the world, including in the UK, the US and France in the coming months.
Financial markets also face the risk of a “sharp correction” to asset prices, which have risen significantly in recent years. The bank also highlighted that high inflation or geopolitical changes could trigger a sell-off which could impact prices.
The Bank of England said: “Investors in financial markets are continuing to expect the economy to recover and inflation to fall.
“They are placing less weight on risks, such as geopolitical developments or continued high inflation, that might cause weaker growth or interest rates to stay higher than expected.
“These risks make it more likely that there could be a sharp correction in asset prices that could ultimately make it more costly and difficult for UK households and businesses to borrow.”