The spectre of rising mortgage costs looms over an additional one million UK homeowners by the end of 2028, according to a revised forecast from the Bank of England. This brings the total number affected to just over five million, with geopolitical tensions, including the Iran conflict, playing a significant role in this revised projection.
Although the severity of the increases may not be as steep as those experienced in recent years, the expected average rise for typical owner-occupiers switching from fixed-rate mortgages in the next two years is still around £45 per month. In contrast, those securing new deals between late 2022 and the end of 2024 faced an average increase of £120.
A specific group of 750,000 homeowners currently benefiting from interest rates below 3% on their existing deals are set to experience more significant increases when their expiring deals require a remortgage. This could lead to monthly repayments climbing by an average of £170. A substantial majority – over eight in ten – of mortgage customers in the UK are currently on fixed-rate products, which shield them from interest rate fluctuations until their fixed term concludes, typically after two or five years.
The Bank of England's report highlights that while over two million borrowers on two-year fixed deals expiring by the end of 2028 were previously expected to remortgage close to their current rates, avoiding significant repayment changes, this prospect has now diminished. Prior to recent geopolitical developments, there was an expectation that repayments for these borrowers might fall in the coming years; this is now considered unlikely.
Despite the increased number of homeowners facing higher mortgage costs, the Bank's report concludes that household finances remain resilient, even amidst a challenging external environment. Household debt levels are noted to be low relative to historical averages. While acknowledging that some vulnerable households, including renters, are more exposed to higher energy prices due to a larger proportion of their income spent on essentials, the Bank does not anticipate that debt will lead to a sharp reduction in consumer spending across the board.
This evolving landscape for mortgage holders comes at a time when the UK housing market has seen varied activity. Recent data from Rightmove indicated an average asking price for new sellers of £375,110 in May, a slight increase month-on-month. Affordability remains a key concern, particularly for first-time buyers navigating higher interest rates and substantial deposit requirements, even with schemes like Help to Buy winding down and stamp duty cuts.