More than five million homeowners are now expected to face higher mortgage repayments by the end of 2028, according to the Bank of England’s latest Financial Stability Report.
The report, published on Tuesday, found that an additional one million households are now expected to see their mortgage costs increase compared with projections made in December.
The Bank said more than five million owner-occupiers will experience higher monthly mortgage repayments before the end of 2028, up from the four million previously forecast.
The central bank said changes in financial market expectations following the conflict involving Iran had altered the outlook for interest rates and mortgage costs.
Its revised assessment means hopes that many borrowers would see lower mortgage repayments over the coming years have diminished.
However, the Bank said the increase in borrowing costs is expected to be less severe than the sharp rises experienced in recent years.
According to the report, homeowners whose fixed-rate mortgages expire over the next two years are expected to see a typical increase in monthly repayments of around £45.
That compares with an average monthly increase of £120 experienced by borrowers who refinanced between late 2022 and the end of 2024, following a period of financial market volatility and successive increases in the Bank Rate.
However, the Bank said the increase in borrowing costs is expected to be less severe than the sharp rises experienced in recent years
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The Bank said that while millions of households will face higher repayments, the overall adjustment is expected to be more manageable than during the post-pandemic period of high inflation and rising interest rates.
Borrowers currently benefiting from the lowest mortgage rates are expected to see the largest increases.
Around 750,000 homeowners whose fixed-rate mortgages carry interest rates below three per cent are due to see those deals expire this year, with average monthly repayments expected to increase by £170.
Fixed-rate mortgages remain the most common type of home loan in the UK, with more than eight in 10 borrowers choosing products that typically fix interest rates for two or five years before they must be renewed.
The Bank Rate movements over the past few years | BANK OF ENGLAND
The report also suggested that more than two million households whose two-year fixed-rate mortgages expire by 2028 are expected to remortgage at interest rates similar to those they currently pay.
As a result, the Bank said their monthly mortgage repayments are likely to remain broadly unchanged.
The report said lower-income households, including those renting their homes, remain particularly exposed to higher energy prices because they spend a greater proportion of their income on essential household costs.
The Bank said: “They spend a larger share of their income on essentials, limiting their ability to adjust spending in response to higher prices.”
Despite those pressures, the report concluded that household finances remain relatively resilient overall.
The Bank said household debt remains low by historical standards and suggested consumer spending is unlikely to fall sharply, despite continued financial pressures on some lower-income households.
They also highlighted risks linked to rapid developments in artificial intelligence, warning that growing adoption of the technology has increased cyber security risks.
The Bank further said valuations of companies linked to artificial intelligence have become increasingly stretched, echoing concerns it also raised in its Financial Stability Report published in December.