The Bank of England has issued a warning that homeowners who choose to remortgage in the latter half of this year will experience a significant increase in their annual costs, amounting to £2,640 due to rising borrowing rates. The Bank estimates that for the average mortgage holder transitioning from a fixed-rate deal to more expensive terms, monthly payments are likely to rise by £220 over the next six months.
According to the Bank's latest financial stability report, approximately 4.5 million homeowners have already been affected by higher mortgage repayments since late 2021 when the Bank began raising interest rates to combat inflation. Additionally, the report predicts that by the end of 2026, an additional four million mortgage holders will face increased borrowing costs. During this period, at least one million households will experience a monthly payment increase of at least £500.
Andrew Bailey, the governor of the Bank, acknowledged the impact of increased interest rates, stating that there are consequences resulting from the rate hikes. The Bank emphasized that while the UK economy has shown resilience to interest rate risks so far, it will take time for the full impact of higher rates to manifest.
Having raised its base interest rate from a record low of 0.1% to a 15-year high of 5% last month, the central bank's policymakers have taken steps to combat inflation. Data from Moneyfacts reveals that the average two-year fixed-rate mortgage deal has reached 6.7%, the highest level since August 2008. Meanwhile, consumer inflation stands at 8.7%.