Bank of England Issues Stern Warning
The Bank of England has issued a warning that five million households in the UK will face a significant increase in their mortgage bills. According to the Bank, homeowners will see their monthly payments rise by an average of £240 as they renew their mortgage loans at higher interest rates. This increase comes as mortgage rates have skyrocketed to 6.5%, a sharp rise from the 2.25% average rate in 2021.
Impact on Borrowers
Currently, 55% of mortgage borrowers, equivalent to 5.5 million people, have already experienced higher costs when renewing their mortgages. For the average borrower renewing their fixed rate between April 2023 and the end of 2026, their monthly repayments are projected to increase by around £240, representing a 39% increase.
Concerns for Long-Dated Mortgages
Deputy Governor Sarah Breedon, who is responsible for financial stability, expressed concern over the increasing number of people, especially younger borrowers, opting for long-dated mortgages of up to 35 years in an attempt to reduce their monthly costs. The Bank is closely monitoring this trend due to worries about individuals carrying mortgage loans into retirement, when their income may not be sufficient to cover the monthly expenses.
Diminished Risk of Defaults
Despite the higher mortgage bills, the Bank of England stated that the risk of defaults would be significantly lower compared to the 2008 financial crash. This is attributed to higher wages and lower personal debts among borrowers.
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