Soaring mortgage costs will leave households £500 worse off every month from now until the end of 2027.
The Bank of England has warned that mortgage costs could skyrocket for about 4.4 million households over the next 36 months.
According to the Bank’s Financial Policy Committee (FPC) this will include £500 per month hikes for the mortgages of around 420,000 households.
Around 31% of all mortgages – or 2.7 million people – are expected to refinance onto a rate of more than 3% for the first time before the final quarter of 2027, while between one and 1.5 million people will see a second increase to their mortgage repayment rates, having already fixed onto a higher price when interest rates started going up in the second half of 2021.
A typical household coming off a fixed-rate mortgage in the next two years could face a jump of at least £146 per month, the Bank’s latest Financial Stability Report shows, which is slightly down from the projected £180 forecast in June.
Many households have already seen an increase in their mortgage costs, but around 37% have yet to fix to a new rate since they started rising three years ago.
The report adds that while around half of mortgage holders will see payments rise up to 2027,, 27% will see monthly payments drop over the next three years having already seen rates rise, and 23% will see no change at all.
The Bank of England has stressed that UK lenders are in a strong position to support households facing steep repayment costs, even if the economic outlook gets worse.
David Hollingworth, from L&C Mortgages, warned that some fixed mortgage rates have already edged up amid concerns that inflation could remain higher for longer, curtailing the ability for the Bank of England to cut interest rates “as sharply as hoped”.
He said: “Swap rates (which lenders use to price mortgages) look set to edge up further, which will put further upward pressure on fixed rates despite there being a mix of ups and downs in the early stages of the new year.
“Given the sharp pricing that lenders have been employing there will be only so much that they will be able to absorb before any further rises hit fixed-rate mortgages.
“In the current market it looks sensible for any borrowers looking to arrange a new fixed rate to secure a deal sooner rather than later, starting the process a good three to four months ahead.
“That will mean they secure a deal and avoid any potential hikes to rates but will still have the ability to move to a better rate if there is any subsequent improvement before completion.”