One Million Homeowners to Face £500 Monthly Mortgage Shock

In a recent announcement, the Bank of England revealed its forecast amidst a soaring average two-year mortgage rate, reaching a 15-year high of 6.66%. To mitigate the impact of rising rates, individuals have been resorting to longer borrowing periods, with one in ten new mortgages now extending for 35 years or more. Additionally, there has been a substantial increase in the number of homeowners choosing to remortgage on longer terms.

Since the end of 2021, approximately 4.4 million mortgage holders have seen an increase in their mortgage costs, resulting from the Bank of England’s decision to gradually raise interest rates from the historically low figure of 0.1%. Moreover, an additional 3.8 million households are expected to remortgage by the end of 2026, which will result in a significant surge in costs.

According to the Bank of England’s latest Financial Stability Report, approximately two million households planning to remortgage in the latter half of 2023 will experience an average monthly mortgage payment increase of £220. Notably, the benchmark interest rate currently stands at 5%, but market forecasts predict it could surpass 6% next year.

This surge in mortgage costs is anticipated to exert immense financial pressure on many families, with 650,000 households being at risk of defaulting by the end of this year, as warned by the Bank. It is worth noting, however, that the number of households at risk of falling behind on mortgage payments is expected to remain lower than during the peak of the global financial crisis, with 870,000 households being classified as facing a high risk of arrears back in 2007.

While the Bank of England acknowledges the resilience of the economy thus far in response to rising stress levels, it also emphasizes that the full impact of higher interest rates will take time to materialize.