Suburban residential properties and skyscrapers from distant cities in Ruskin Park, a public green space in Lambeth, on June 11, 2023, in London, England.
richard baker | In Images | fake images
The Bank of England has warned that already struggling homeowners could see a sharp rise in monthly mortgage payments in the coming months, but stressed households today are not as in debt as they were in the past. period leading up to the global financial crisis.
UK households are currently hit by a cost of living crisis and higher interest rates as their fixed rate mortgage deals expire.
In the BOE Financial Stability Report, posted on wednesdayThe central bank said its model shows that more than 2 million mortgage holders will see monthly payments increase by between £200 and £499 ($259 to $645) by the end of 2026.
Meanwhile, almost 1 million people were projected to see their monthly mortgage costs increase by more than £500 over the same time period.
However, the BOE said that the amount of household debt remains “somewhat well below” the historical peak reached in 2007.
The central bank’s report comes shortly after the UK’s two-year average fixed mortgage rate rose to its highest level since 2008, raising fears of an impending “mortgage catastrophe”.
The average rate on a two-year fixed contract rose to 6.70% on Wednesday, according to figures from data provider Moneyfacts. This key mortgage rate hit 6.66% on Tuesday, reaching its highest level in 15 years.
The average five-year mortgage rate rose to 6.20% on Wednesday, Moneyfacts said, a modest increase from Tuesday but still far from the 6.51% level reached on Oct. 20.
In recent years, most homebuyers in Britain have taken out mortgages at a fixed interest rate for a specified period, usually two to five years. When the deal expires, they switch to a new fixed rate or accept a variable rate.
Monthly mortgage payments ‘will continue to rise’
UK mortgage costs have risen in recent months after 13 consecutive rate hikes.
More recently, the BOE raised rates by 50 basis points to 5% last month, a larger increase than many had expected. The surprise move will affect millions of homeowners as interest rates on many UK mortgages are directly linked to the central bank base rate.
Renters are also likely to see their payments increase as buy-to-let homeowners pass on higher mortgage payments.
It comes as the BOE battles stubbornly high inflation, and Gov. Andrew Bailey reportedly said Monday that the central should “see work throughabout lowering prices.
Many believe that further interest rate hikes are inevitable in the coming months.
“UK households face challenges from rising costs of living and higher interest rates,” the bank said in the report. “As fixed-rate mortgage offers expire and households renew their mortgages, the average cost of mortgage payments will continue to rise.”
People walk outside the Bank of England in the City of London financial district, in London, Britain, on January 26, 2023.
Henry Nicholls | Reuters
Research by the National Institute for Economic and Social Research, a leading independent think tank, recently My dear that the BOE’s recent 50 basis point hike would see 1.2m UK households (4% of UK households) run out of savings by the end of the year due to higher mortgage payments.
That would take the proportion of insolvent households to nearly 30% (about 7.8 million), the NIESR said, with the biggest impact coming in Wales and north-east England.