Around three million UK households will see their mortgage payments rise over the next two years as high interest rates continue to prevail, the Bank of England said.
Around 400,000 homes are likely to see “very large increases” of more than 50%, its financial policy committee said.
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Interest rate were taken to a maximum of almost two decades 5.25% in an effort to suppress price increases behind the cost of living crisis.
Inflation – the pace of price increases – has reached a 40-year high, but is now at the level of the Bank 2% target as high interest rates made borrowing more expensive and limited spending.
Despite the higher basic interest rate set by the Bankmore than a third mortgage holders (35%) still pay a mortgage rate of less than 3%, the financial policy committee said Thursday in its financial stability report.
This is because they signed an agreement before the energy price shocks that resulted from the war in Ukraine.
When these deals end, families will have to subscribe to a more expensive product.
Most mortgage holders, however, have repriced since mortgage rates began their cycle of increases in late 2021.
A typical household abandoning a fixed-rate mortgage before the end of 2026 would face a jump of around £180 a month, the report said.
It is the role of the financial policy committee to ensure that the UK financial system can deal with economic shocks and risks.
It said UK lenders are still in a strong position to support homes and businesses even if the economy worsens.
Currently, interest rates are expected to fall in the coming months with a cut expected for August, September, November and December.
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But consumers have been warned not to expect a return to the era of ultra-low interest rates.
The chief executive of the UK’s biggest lender, Charlie Nunn told Sky News the new normal is mortgage rates of 3.5% to 4.5%.
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