Mortgage misery for four million households as bills soar

Nearly four million households will be hit with higher mortgage costs over the next three years even though interest rates are now coming down, the Bank of England has said.

The number – which represents just under half of home loans – reflects those who have not yet felt the impact of rate increases in previous years.

The Bank of England started raising interest rates in December 2021 when they were close to zero and they eventually hit 5.25 per cent in the summer of 2023.

It started cutting them the following year and since then they have come down to 4 per cent. But that is still much higher than where they were at the start of the process.

And it means anyone with a fixed mortgage deal agreed during a period of lower rates still faces a shock when it expires.

In its regular Financial Stability Report, the Bank of England said: ‘Borrowing costs have decreased following recent reductions in Bank Rate.

‘But there are still some households that are expected to face higher mortgage payments over the next three years.’

While a third of borrowers, or three million households, will see payments decrease in the next three years, others will face a hike.

‘Some households are expected to see an increase in mortgage repayments, as the full impact of higher interest rates has not yet passed through to all,’ the Bank said.

In total over the next three years, 43 per cent of mortgage accounts, or 3.9million, will refinance onto higher rates, according to the report.

The number includes both fixed and variable rate mortgages.

The Bank said that 4.5million fixed rate home loans are coming to the end over the next two years. On average they will see their monthly mortgage repayments go up by £64. However some will face ‘much larger increases’.

That average number is gradually coming down. Back in July, the average borrower coming off a fixed rate deal over the next two years faced a projected £107 increase.

The figures illustrate that if – as expected – interest rates are cut again to 3.75 per cent later this month, not all borrowers will benefit from the pre-Christmas gift.

In the report, the Bank concluded that despite rising unemployment and global uncertainties, UK households remain financially ‘resilient’.

The share of household income spend on mortgage repayments, at 7 per cent, remains well below peaks of more than 10 per cent seen during the global financial crisis and a ‘very severe shock’ would be needed to return to those levels, it said.