One million more UK homeowners set to face higher mortgages after Bank of England forecast revision

The Bank of England has said that one million more UK homeowners are now expected to face higher mortgage bills than it had previously forecast. In its latest Financial Stability Report, the central bank said just over five million homeowners should see their monthly repayments rise by the end of 2028. The revision comes as the impact of the Iran war feeds through to the outlook for borrowing costs and household finances.

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The Bank said the new projection compares with four million homeowners it had expected in December to face higher repayments by that point. It added that the increase would not be as severe as the mortgage shock seen in recent years. A typical owner-occupier coming off a fixed-rate deal in the next two years is likely to see monthly payments rise by about £45, the Bank said.

That is well below the typical £120 increase seen for people taking out a new deal between the end of 2022 and the end of 2024. The report also said 750,000 homeowners paying less than 3% interest on their current deal will roll off those products this year. Those borrowers are expected to see an average increase of £170 a month in repayments.

More than eight in 10 mortgage customers are on fixed-rate deals, which do not change until the agreement expires, usually after two or five years. The Bank said more than two million borrowers on two-year fixed deals expiring by the end of 2028 were still projected to remortgage close to their existing rate and see little change in repayments. The forecast matters because it suggests the pressure on household budgets will continue even if the worst of the recent mortgage shock has passed.

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The Bank said borrowers are now unlikely to see repayments fall over the coming years, as had been expected before the Iran conflict. That points to a slower easing in financial pressure for many households, especially those coming to the end of fixed-rate terms. The report also linked the wider economic impact of higher energy prices to lower-income households, including renters, who spend a larger share of their income on essentials.

The latest assessment comes against a backdrop of a mortgage market that has already adjusted sharply in recent years as interest rates moved higher. Fixed-rate borrowing has insulated many homeowners from immediate changes, but it also means the effect of higher rates is delayed until deals expire. The Bank's figures indicate that a large number of households will still be exposed to refinancing at less favourable rates over the next few years.

For many, the key issue will be whether incomes rise enough to offset the higher monthly cost. What remains unclear is how far the conflict-driven economic effects will continue to influence mortgage pricing and household borrowing costs. The Bank's forecast gives a broad picture to the end of 2028, but individual outcomes will depend on when fixed deals end and what rates are available at that time.

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