Tens of thousands of Londoners are facing annual mortgage bill hikes of more than £12,000, the Bank of England warned on Wednesday.
It sounded the alarm over the huge home loan increases as the average two-year fixed-rate mortgage rate hit 6.7 per cent, according to new figures.
The BoE stressed that nearly four million more homeowners faced mortgage bill increases by the end of 2026.
It emphasised that for the typical mortgage holder their monthly interest payments were expected to rise by some £220 if they come off a fixed rate deal and have to pay a rate 3.25 percentage points higher.
But around a million households would see seen their monthly repayments go up by about £500, and some 215,000 by more than £1,000, with tens of thousands of these almost certainly in London given the high property costs.
The stark predictions came as figures published by Moneyfactscompare.co.uk put the average two-year fixed residential mortgage at 6.7 per cent, up from 6.66 per cent on Tuesday, which was above the level shortly after Kwasi Kwarteng’s disastrous mini-budget last autumn.
The average five-year fixed residential mortgage rate today was 6.2 per cent, up from an average rate of 6.17 per cent.
As mortgage rates go up, Treasury minister Victoria Atkins told LBC Radio: “We are very, very aware of how painful this will be for a lot of people.
“This is why the Chancellor has negotiated a mortgage charter with 90 per cent of mortgage lenders so that people are treated fairly and properly if they find themselves in difficult circumstances.”
But shadow Chancellor Rachel Reeves said: “Today’s forecast from the Bank of England showing the typical household will pay £220 more a month on their mortgage payments demonstrates again the painful hit on families from the Tory mortgage bombshell.”
The bank detailed the impact of the mortgage crisis in its Financial Stability in Focus: Interest rate risk in the economy and financial system report.
It stressed that at the start of this year 87 per cent of the outstanding value of UK residential mortgages was on a fixed rate, compared to under 30 per cent in the early 2000s.
“Nonetheless, around half of mortgage accounts (4.4 million) are estimated to have already seen payment increases since mortgage rates started to rise in late 2021, with higher rates expected to affect the vast majority of the remainder (a further 3.8 million) by the end of 2026,” it added.
“For the typical mortgagor rolling off a fixed deal over the second half of 2023, monthly interest payments are expected to increase by around £220 if their mortgage rate rises by 325 basis points (the increase implied by quoted mortgage rates as at the end of June).”
The analysis made clear the political threat to Rishi Sunak ahead of the next general election, expected in the autumn of 2024, as millions of people have already seen their mortgage bills soar, with millions more facing these financial woes in the pipeline.
Official figures on Tuesday also showed average pay rises, excluding bonuses, at 7.3 per cent in the three months to May, compared to a year earlier, fuelling fears of an inflation spiral.
With inflation stuck stubbornly at 8.7 per cent in May, real terms pay is still falling for millions of workers.
The Pound also reached a 15-month high against the Dollar, amid expectations that interest rates will rise further from five per cent, which some experts suggesting they could go as high as seven per cent.
The BoE stressed that major UK banks are strong enough to handle severe economic conditions, but households and businesses are coming under pressure from higher interest rates.
The central bank's stress test found that lenders are "resilient" against a scenario involving persistently high inflation, rising global interest rates, deep recessions in the UK and higher unemployment.
But UK households are facing higher debt burdens against rising interest rates, with more mortgage holders coming to the end of their fixed-rate deals.
Households' use of consumer credit has increased, and the number of people falling into arrears ticked up slightly in the first quarter of 2023, the Bank found in its latest Financial Stability Report.
Higher interest rates are also putting some firms under pressure, especially smaller businesses with more debt, it said.
Ms Atkins also said no final decisions had been made by Rishi Sunak and Chancellor Jeremy Hunt on whether to accept the recommendations, from the independent pay review bodies, on pay rises for public sector workers such as teachers, police and the armed forces, reported to be in the region of six per cent.
“One of the things that the Chancellor has said very recently this week is that we have to be fair but also responsible with these decisions,” she added, amid reports that Whitehall departments may have to find savings, or make cutbacks, to fund part of the pay rises.
