"While around a half of mortgagors are likely to experience greater borrowing costs over the next three years as they refinance onto higher rates, around one quarter of borrowers are expected to benefit from lower rates."
- Bank of England
Around half of mortgages are expected to see payment increases by the end of 2027, according to new analysis from the Bank of England.
This is because 37% of fixed rate mortgage accounts have not yet re-fixed since rates started to rise in 2021, so the full impact of higher interest rates has not yet passed through to all mortgagors.
In total, 4.4 million mortgage accounts (50%) are expected to refinance onto higher rates. Of these, 2.7 million (31% of all mortgages) are expected to refinance onto a rate above 3% for the first time and roughly 420,000 (5% of all mortgages) will see payments increase by more than £500 per month.
For other borrowers, previous and expected falls in Bank Rate will lead to decreasing mortgage payments. 27% (2.4 million) of mortgage accounts are expected to see monthly payments decrease between now and Q4 2027. 1.7 million (19% of all mortgages) of these are on variable rates, while the remaining 800,000 are currently fixed above prevailing rates.
On balance, for the typical mortgage holder rolling off a fixed rate in the next two years, their monthly mortgage repayments are projected to increase by around £146 (22%), compared to £180 (28%) in the Bank's June report. An increasing proportion of households are choosing to borrow over longer terms, which reduces monthly capital repayments in the near term but means they will have more debt to service further out. The Bank says a continuation of this trend would reduce the average expected increase in mortgage repayments.
The Bank of England's Financial Stability Report says that "overall, UK households and businesses have remained resilient".
The report continues: "While many UK households, including renters, are still facing pressures from the increased cost of living and higher interest rates, the share of households who are behind in paying their mortgages is low by historical standards. And the share of households spending a high proportion of their income on mortgage payments is expected to remain low.
"The outlook for mortgage borrower resilience has improved in line with the domestic economic outlook. Although quoted mortgage rates have risen in recent weeks, they remain slightly lower than at the time of the June Financial Stability Report. While around a half of mortgagors are likely to experience greater borrowing costs over the next three years as they refinance onto higher rates, around one quarter of borrowers are expected to benefit from lower rates.
"Increasing incomes and decreases in actual and expected interest rates mean that, in aggregate, the share of household income spent on mortgage repayments is expected to increase by less than previously forecast."
Mark Eaton, COO of April Mortgages, commented: “Getting to grips with the fact we are no longer in an ultra-low interest rate environment is not easy for borrowers.
“Millions of homeowners are facing extreme payment shock as their fixed deals come to an end.
“Household finances have come under intense pressure in recent years and finding the extra budget to cover higher mortgage repayments could pose a problem for some.
“The fundamental question remortgage customers should be asking themselves, is how has my appetite for risk changed?
“Too many borrowers are still playing mortgage roulette by fixing for two years and gambling on rates falling. That's a risky game to play when it comes to securing your home.”
