Four million mortgage borrowers face steep increases in repayments over the next few years — even as the Bank of England cuts interest rates.
Homeowners reaching the end of their fixed-rate deals are on course to see monthly payments rise by a typical £180 — or 28 per cent, equating to more than £2,000 a year — by the end of 2026.
For some 400,000 people, there is expected to be a ‘very large’ rise of 50 per cent or more, the Bank’s latest Financial Stability Report warned.
The figures illustrate that while rate cuts are expected to deliver relief for many over coming months, a large number of borrowers are still facing painful hits to their finances.
Markets currently expect to see up to two interest rate cuts by the end of this year, with a 50/50 chance that the first will come in August.
That will deliver an immediate boost to around 1.5 million borrowers whose mortgage rates are directly linked to the Bank’s base rate and will see their repayments fall.
And it should also mean that a growing number of others who are on fixed-rate deals are able to move to cheaper home loans.
Altogether it is projected that two million will see their monthly mortgage payments fall by the end of 2026.
But Bank of England rate changes take time to feed through to the mortgage market.
Interest rates have soared from 0.1 per cent at the end of 2021 to 5.25 per cent today.
Borrowers who took out cheap fixed-rate deals before those hikes have been able to continue to benefit from them until they expire.
Most have now seen their payments go up.
However, four million have still not been affected and face an increase when their fixed-deals expire between now and the end of 2026, including 1.4 million by the end of this year.
A total of 3 million mortgages are currently on fixed rates of less than 3 per cent – some of them due to expire later than 2026.
Typical rates on offer to new borrowers today are closer to 6 per cent.
It means that many will face a big shock when they come off cheaper deals.
However, the scale of the expected pain is easing as Bank of England rate cuts approach.
In December, the Bank projected that borrowers coming to the end of cheap deals would see their typical monthly payments rise by £240.
Meanwhile, the Bank’s latest report pointed to housing starting to become more affordable.
House prices remain 24 per cent above 2019 levels but that is smaller than the growth in incomes over the same period.
It is thought to be the first time in many years — after a long period of soaring property values — that pay has been growing more quickly.
Rate cut hopes have been building over recent months and could be imminent now that inflation has fallen back down to its 2 per cent target.
The Bank’s latest report found that households and businesses have generally proven ‘resilient’ to higher interest rates.
Many of them — including renters — ‘remain under pressure’, with the high cost of living taking its toll on households and subdued demand hurting firms.