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How to protect your finances during divorce

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Interest rates push up mortgage costs for more than 4 million households, says Bank of England

Lucy Harley-McKeown
Updated ·2-min read
FILE - A man walks past the Bank of England, at the financial district in London, on May 11, 2023. The Bank of England is poised to raise borrowing costs again on Thursday June 22, 2023, to combat stubbornly high inflation, which has failed to come down from its peak as quickly as expected. (AP Photo/Frank Augstein, File)
The Bank of England said UK banks are currently resilient against economic shocks, but the full effects of inflation and interest rate hikes may not yet have fed through. Photo: AP Photo/Frank Augstein (ASSOCIATED PRESS)

Around four million people on a typical two- or five-year fixed mortgage deal are set to face payment hikes in the coming years due to rising interest rates, a new report by the Bank of England said on Wednesday.

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 half-yearly assessment 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.

Read more: Mortgage rates - What the banks are offering following interest hikes

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Around 4.5 million people with a fixed-rate mortgage have already seen an increase in their monthly repayments since interest rates started to rise in late 2021, the Bank found.

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 rate.

Meanwhile, 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 central bank has hiked interest rates sharply over recent months, taking them to 5% in the latest round. Rates sat at around 0.1% at the end of 2021. The cycle has raised concerns that the effect on households, businesses and the financial sector could push the economy into recession.

It was revealed on Tuesday that mortgage rates have reached a 15-year high, surpassing the levels seen last autumn after the chaotic Liz Truss mini-budget. A typical two-year deal has risen to 6.66%, up from 6.63% on Monday, according to data provider Moneyfacts.

Read more: Mortgage rates hit 15-year high — surpassing chaotic Liz Truss mini-budget levels

Despite the pressure on consumers, the central bank added that the UK banking system would be able to withstand a severe macroeconomic shock and has the capacity to support households and businesses throughout the stress. Although it added that it will take time for the full impact to feed through.

Watch: Two-year mortgage rates hit 15-year high of 6.66%

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