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Bank of England issues alarming warning to anyone with a mortgage

by DD Staff

December 02, 2024

Bank of England issues alarming warning to anyone with a mortgage

key takeaways

Millions of mortgage-bearers in the UK have received a concerning warning from the Bank of England.

According to recent research, an estimated 4.4 million families in the UK would see hikes in their mortgage payments over the next three years.

According to its most recent Financial Stability Report, 420,000 households out of the 4.4 million might see a £500 increase in their monthly payments.

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.

This projection marks an improvement from the Bank's June forecast, which had anticipated monthly payment increases of £180.

The Bank warned that the overall risk environment for the economy and financial sector has increased over the past six months, partly due to global political shifts.

Risks from wars, trade tensions and cyber attacks are rising, with the Bank noting that growing geopolitical tensions pose a significant risk to broader financial stability.

Officials noted: "Following elections in many countries, a range of macroeconomic and financial policies may change under newly-elected governments."

The housing market has shown surprising resilience, with the average UK house price rising by 1.2 per cent month-on-month in November, according to Nationwide Building Society.

Property values now sit just one per cent below their all-time high, with the annual price growth rate accelerating to 3.7 per cent in November from 2.4 per cent in October.

The average house price across the UK reached £268,144 in November.

Robert Gardner, Nationwide's chief economist said: "House prices increased by a robust 1.2 per cent month-on-month, after taking account of seasonal effects, the largest monthly gain since March 2022.

"The acceleration in house price growth is surprising, since affordability remains stretched by historic standards, with house prices still high relative to average incomes and interest rates well above pre-Covid levels."