Yahoo Finance Interest rates to remain high amid uncertain outlook for inflation, warns Bailey
Nearly 5 million households to face even higher mortgage costs
Interest rates are likely to need to remain around current levels even as the full impact of the hikes is yet to filter through to UK households and smaller businesses, the Bank of England warns.
Governor Andrew Bailey said that the overall risk environment remains challenging. He added that the “full impact has yet to be felt” from rates, which stand at 15-year highs of 5.25%.
“The full effect of higher interest rates has yet to come through, posing ongoing challenges to households, businesses and governments, which could be amplified by vulnerabilities in the system of market-based finance,” the BoE's latest report on financial stability said, suggesting more pain ahead.
Read more: Mortgages: First-time buyers facing deposits twice their annual income
“Household finances remain stretched by increased living costs and higher interest rates, some of which has yet to be reflected in higher mortgage repayments," the report added.
Almost five million UK homeowners are still set to see their mortgage repayments jump by hundreds of pounds over the next three years, as rising interest rates have heightened risks in the global financial markets.
Despite the pain for UK households, the BoE has yet again said that it is not thinking about cutting rates as the outlook for inflation remains uncertain.
"Rates likely to need to remain at these levels for an extended period to bring inflation back to target on a sustained basis," Bailey said.
"The full effect of higher interest rates is yet to come through. Therefore we remain vigilant to financial stability risks that might arise,” he added.
Five million families face paying an extra £240 per month on their mortgages by the end of 2026 as cheaper mortgage deals come to an end.
Read more: How first-time buyers can get on the property ladder in a cost of living crisis
That is on top of the more than five million mortgage holders that have moved to a new fixed-rate deal since interest rates started rising in late 2021 from an ultra-low of 0.1% to the current 5.25%.
A typical mortgage holder coming off a fixed rate between the second quarter of 2023 and the end of 2026 is projected to face a £240 increase in their monthly repayments.
But around 500,000 households could experience a monthly increase of more than £500 by the end of 2024.
Watch: Bank of England keeps rates at 15-year high
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