Moartgage Loan: Half the UK’s mortgage holders face paying higher rates

Mortgage payments ‘will rise for half of UK homeowners over next three years’

Bank of England financial stability report says 4.4 million households will face extra pressure on their finances

The mortgage payments of half of UK homeowners will rise over the next three years, leaving 4.4 million households facing extra pressure on their finances, the Bank of England has said.

The Bank’s financial policy committee said this would include £500-a-month increases for the mortgages of about 420,000 households.

The committee found that more than a third of borrowers – about 37% – had so far been shielded from rises to interest rates because they fixed their mortgages before increases began in the second half of 2021.

About 31% of all mortgage holders, or 2.7 million households, are expected to refinance on to a rate of more than 3% for the first time before the end of 2027.

That includes up to 1.5 million households, who will be forced to roll on to higher mortgages for a second time since interest rates started rising three years ago.

In its financial stability report, the Bank’s committee said this would lead to a 22% increase in monthly payments, on average, adding about £146 to the typical bill. However, that is slightly lower than previous forecasts in June, which had pointed to a £180 increase.

In total, the mortgage payments of 50% of mortgage holders will increase over the next three years, with 23% seeing no change and 27% experiencing a fall in payments.

Policymakers at the Bank announced a quarter-point cut in interest rates to 4.75% earlier this month, raising hopes that lower rates would ease the burden on households in the longer term.

However, the Bank warned that conditions for poorer households had worsened. “Pressures on renters and lower-income households continue. Savings buffers have decreased for lower-income households and the share of renters who have fallen behind on payments has risen slightly,” it said.

Separately, the Bank’s governor, Andrew Bailey, said uncertainty around the global economic outlook had increased. “Geopolitical risk remains elevated, and as we are an open economy with a large financial sector, these risks are particularly relevant to UK financial stability,” he said.

Policymakers also released the results of their first stress test into the shadow banking sector. It found that hedge funds, pension funds and other companies in the largely unregulated sector were at risk of amplifying market shocks and triggering a £17bn asset sell-off.

The exercise, the first in the world by a central bank, tracked how non-bank financial institutions – often referred to as the shadow banking sector – would react in a short and sharp shock affecting financial markets.

The stress test showed that in this scenario, companies would rapidly sell off as much as £17bn worth of assets, as they scrambled to recapitalise or limit their activities, in a way that would “amplify the shock”.

There are concerns that risks are emerging in the shadow banking sector that could echo the problems experienced in the financial sector in the run-up to the 2008 financial crisis.

The Bank’s regulatory arm, the Prudential Regulation Authority (PRA), said that while industry standards had increased the resilience of companies in some corners of the shadow banking industry – including insurers, money market funds and liability-driven investing funds – a lack of regulation meant that resilience was shaky and could deteriorate over time.

Shadow banking refers to financial firms that face little to no regulation compared with traditional lenders, and includes businesses such as hedge funds, private credit and private equity funds.

More than 50 City institutions took part in the exercise, including insurers, clearing houses, asset managers, pension fundsand hedge funds.

The PRA said it would start paring back its annual banking stress tests, which were introduced in 2015 to check if banks would be able to withstand a major shock akin to the 2008 crash. It will now run those tests once every two years, in order to alleviate the burden on banks that it believes are now strong enough to require slightly less oversight.

The Bank will supplement those bi-annual exercises with “exploratory” exercises testing resilience to a wider range of risks that could include another climate review.

The Bank also warned on Friday that higher trade barriers could hit global growth and feed uncertainty about inflation, potentially causing volatility in financial markets.

The Bank said the financial system could also be hit by disruption to cross-border capital flows and a reduced ability to diversify risk, although it stopped short of directly referring to Donald Trump’s return to the White House, which is expected to affect global trade.

“A reduction in the degree of international policy cooperation could hinder progress by authorities in improving the resilience of the financial system and its ability to absorb future shocks,” the Bank said.

Millions to see mortgage costs rise, says Bank

Half of UK mortgage holders could see their payments increase over the next three years, the Bank of England has said.

It estimates that about 4.4 million mortgages are expected to see payments rise by 2027, including £500-per-month hikes for around 420,000 households.

However, about a quarter of borrowers are set to see payments fall, and the Bank said households were better equipped to cope with mortgage repayments than predicted earlier this year.

The Bank also warned that global risks to the economy have been rising, stating wars, trade tension, cyber attacks and geopolitical tensions pose “significant” risks to broader financial stability.

In its latest Financial Stability Report, the Bank said household finances had remained resilient in general.

“While many UK households, including renters, are still facing pressures from the increased cost of living and higher interest rates, the share of households who are behind in paying their mortgages is low by historical standards,” it said.

“And the share of households spending a high proportion of their income on mortgage payments is expected to remain low.”

The Bank of England started to increase interest rates in late 2021 and after a series of rises, rates finally started to fall earlier this year.

The Bank predicts about 2.7 million homeowners will refinance onto a mortgage rate of over 3% for the first time before the end of 2027.

It says a typical owner-occupier coming off a fixed rate in the next two years will see their monthly mortgage repayments increase by around £146.

However, that is a smaller amount than it estimated at its last report in June, reflecting lower mortgage rates and the fact that more households are choosing to borrow over longer terms.

Also, while half of mortgage holders are set to see payments rise by 2027, 23% will see no change and 27% will see payments fall.

The Bank stressed that UK lenders remain in a strong position to support households and businesses, even if the economic risk environment worsens.

Looking at the global picture, the Bank said “uncertainty around, and risks to, the global economic outlook have increased”.

Geopolitical risks remain high with Russia’s war in Ukraine continuing and the conflict in the Middle East.

The Bank noted that following recent elections, “a range of macroeconomic and financial policies may change under newly-elected governments”.

It did not specifically mention US President-elect Donald Trump’s plans to put import tariffs on goods from Canada, Mexico and China, but noted the “potential to increased global fragmentation” of trade.

This fragmentation “poses risks to UK financial stability”, the Bank said.

“A reduction in the degree of international policy cooperation could hinder progress by authorities in improving the resilience of the financial system and its ability to absorb future shocks,” it added.

The Bank also acknowledged that the cost of borrowing for the UK government – as measured through bond yields – had risen since last month’s Budget.

However, it added that “markets have continued to work smoothly”.

Bank of England issues alarming warning to anyone with a mortgage

The Bank of England has issued an alarming warning to millions of households around the UK with a mortgage.

Around 4.4 million UK households are set to face increases in their mortgage payments over the next three years, new data shows.

Of the 4.4million, approximately 420,000 households could see their monthly payments surge by £500, its latest Financial Stability Report showed.

The central bank’s assessment comes as many homeowners continue to grapple with the aftermath of recent interest rate rises, which peaked at a 16-year high of 5.25 per cent earlier this year.

Between one million and 1.5 million people are expected to face a second increase in rates, having already moved to a higher fixed rate since interest rates began rising in late 2021.

The Bank’s report revealed that 2.7 million people, representing 31 per cent of all mortgages, will need to refinance onto rates exceeding three per cent for the first time before the final quarter of 2027.

Despite the challenging outlook, the Bank of England emphasised that UK lenders remain well-positioned to support households and businesses, even if economic conditions deteriorate.

The Financial Stability Report indicated that most households have already experienced an increase in their mortgage rates since borrowing costs began rising substantially.

Interest rates have started to decline from their recent peak, with the central bank making two consecutive cuts to bring the base rate down to 4.75 per cent. About 37 per cent of households with mortgages have yet to fix to a new rate since interest rates began rising in late 2021.

A typical household coming off a fixed-rate mortgage in the next two years faces an increase of around £146 per month in payments.

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