Millions of households could see their mortgage costs rise as interest rate fears grow following global economic turmoil.
Millions of households could see their mortgage costs rise as interest rate fears grow following global economic turmoil.(Image: Getty)
Around 5.2 million UK mortgage holders are now expected to face higher repayments by 2028, according to a new warning from the Bank of England. The figure is up sharply from a previous estimate of 3.9m, meaning an extra 1.3m households could now be hit by rising costs.
The Bank said the outlook for the UK economy has “deteriorated” following the recent conflict involving US-Israeli forces and Iran, which has driven up oil and gas prices and increased pressure on inflation.
Higher inflation often leads to higher interest rates, which directly affects mortgage costs and the deals available to borrowers.
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Recent data shows average rates on two-year fixed mortgages have already increased by around 0.8 percentage points, while five-year deals have risen by roughly 0.7 percentage points.
This means many households coming to the end of fixed-rate deals could soon face noticeably higher monthly payments, particularly those who locked in lower rates in recent years.
The Bank’s Financial Policy Committee warned the global economic backdrop has become more uncertain, with a higher risk of further shocks and periods of volatility.
It said rising energy costs and tighter financial conditions are likely to add to pressure on household budgets, alongside wider cost of living concerns.
While the UK financial system remains “resilient”, the report made clear that households are likely to feel the impact through higher borrowing costs and reduced access to competitive mortgage deals.
Lenders have already responded by increasing rates and pulling some products from the market, with the total number of available mortgage deals falling from around 8,500 to 7,000.
The Bank’s Monetary Policy Committee recently held interest rates at 3.75 per cent, but indicated rates could rise again if inflation remains stubborn.
Although the Bank said typical increases in mortgage payments are expected to remain more modest than the sharp rises seen in recent years, millions of households are still likely to face higher costs as they refinance.
For homeowners, the key risk remains timing, with those due to remortgage over the next few years most exposed to rising rates and potential payment shocks as current deals come to an end.