By the end of 2026, around a million households with a fixed-rate mortgage will have seen their monthly repayments go up by about £500, the Bank of England has said.
The average household will see their monthly interest payments go up by about £220 if they are refinancing during the second half of this year and see their rate go up by about 3.25 percentage points.
Around 4.5 million people with a fixed-rate mortgage have seen an increase in their monthly repayments since interest rates started to rise in late 2021, the Bank found.
Another four million or so households on a typical two-year or five-year fixed deal will likely see their payments go up by the end of 2026.
However, a growing number of mortgage holders are either extending the length of their deal or overpaying their mortgage in order to cushion the impact of higher rates, the Bank said. The Governor of the Bank of England has said there “will be consequences” of higher interest rates on borrowers, as nearly one million mortgage holders could see their monthly repayments increase by about £500 in the next three years.
Andrew Bailey, talking to reporters following the Bank’s latest Financial Stability Report, said: “It is going to have an impact clearly… that is part of the transmission of monetary policy, no question about that.
“What we are seeking to do here… is balance having the transmission of monetary policy with – the two things that I would emphasise – the resilience of the banking system, and the ability to support customers and therefore manage the consequences of this.
“But there will be consequences from increased interest rates I’m afraid because that, from a monetary policy perspective, is why we have to do it.”
UK households are carrying less debt and banks are in a better position to support customers than during the 2008 financial crisis, the Bank of England has insisted.
Sir Jon Cunliffe, the Bank’s deputy governor, said there are some “big differences” between the situation now and 15 years ago, the last time that interest rates were this high.
“I think the big difference is that the amount of household debt being carried is much lower now than it was at the time of the financial crisis, so households are not over-levered as they were before”, he said.
“And that’s one of the reasons why we think that households in distress… that proportion of households will be considerably smaller.
“I think it’s clear that inflation hits the poorest off in society worse, and that’s one of the reasons why we need to get it under control.”
Governor Andrew Bailey added that the UK banking system is much stronger and more able to support its customers through difficult times that in past years.
