Around three million UK households will see their mortgage repayments rise over the next two years as high interest rates continue to take effect, the Bank of England has said.
As many as 400,000 homes are likely to experience “very large increases” of more than 50%, its financial policy committee said.
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Interest rates have been brought to a near two-decade high of 5.25% in an effort to clamp down on price rises behind the cost of living crisis.
Inflation – the pace of price rises – had been at a 40-year high but now stands at the Bank’s 2% target as the high interest rates made borrowing more expensive and limited spending.
Despite the higher base interest rate set by the Bank, more than a third of mortgage holders (35%) are still paying a mortgage rate of less than 3%, the financial policy committee said on Thursday in its financial stability report.
This is because they signed up for a deal before the energy price shocks which resulted from the war in Ukraine.
Once those deals come to an end, households will have to sign up to a more expensive product.
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Mortgage rates of 3.5%-4.5% ‘the new normal’
Most mortgage holders, however, have repriced since mortgage rates started the cycle of increases late in 2021.
A typical household rolling off a fixed-rate mortgage before the end of 2026 is due to face a jump of around £180 a month, the report said.
It is the job of the financial policy committee to ensure the UK financial system can handle economic shocks and risks.
The body said UK lenders are still in a strong position to support homes and businesses, even if the economy worsens.
At present, interest rates are expected to come down in the coming months with a cut forecast for August, September, November and December.
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But consumers have been warned not to expect a return to the era of ultra-low interest rates.
The chief executive of the UK’s largest lender Charlie Nunn told Sky News the new normal is mortgage rates of 3.5% to 4.5%.