Bank of England warns of more mortgage pain to come for homeowners

Homeowners already struggling could see monthly mortgage repayments rise sharply in the coming months, the Bank of England warned, but stressed that households are far less indebted than they were at the start of the global financial crisis.

British households are currently reeling from a cost of living crisis and rising interest rates as fixed-rate mortgage deals come to an end.

In the Bank of England’s Financial Stability Report, published on wednesdayThe central bank said its modeling showed more than 2 million mortgage holders would see their monthly repayments increase between £200 and £499 ($259 to $645) by the end of 2026.

Meanwhile, almost 1 million people are expected to see their monthly mortgage costs increase by more than £500 over the same time period.

However, the BoE said the amount of household debt remained “well below” the historic peak reached in 2007.

The central bank’s report came shortly after Britain’s average two-year fixed mortgage rate rose to its highest level since 2008, fueling fears of an impending “mortgage disaster”.

The average rate on two-year fixed deals rose to 6.70% on Wednesday, according to data provider Moneyfacts. The key mortgage rate hit a 15-year high of 6.66% on Tuesday.

The average five-year mortgage rate rose to 6.20% on Wednesday, up slightly from Tuesday but still some way off the 6.51% level reached on Oct. 20, Moneyfacts said.

In recent years, most homebuyers in the UK have taken out a mortgage with a fixed rate over a specified period, usually two or five years. When the deal expires, they either switch to the new fixed rate or accept a variable rate.

Mortgage costs in the UK have soared in recent months after 13 consecutive interest rate hikes.

Recently, BOE Last month, it raised interest rates by 50 basis points to 5%, an increase that exceeded many expectations. The unexpected move will affect millions of homeowners, as rates on many mortgages in the UK are directly linked to the central bank’s base rate.

It comes as the Bank of England grapples with stubbornly high inflation, with Governor Andrew Bailey reportedly saying on Monday that the central bank must “see through work“About lowering prices.

Many see further rate hikes as inevitable in the coming months.

“UK households are facing the challenge of rising living costs and rising interest rates,” the bank said in the report. “The average cost of mortgage payments will continue to increase as fixed-rate mortgage deals expire and households renew their mortgages.”

Recent research from the National Economic and Social Institute, a leading independent think tank estimated The Bank of England’s recent rate hike of 50 basis points will cause 1.2 million UK households, or 4% of national households, to deplete their savings by the end of the year due to higher mortgage repayments.

NIESR said this would bring the proportion of insolvent households to nearly 30% (about 7.8 million households), with Wales and the north-east of England most affected.