Around half of mortgages are expected to see payment increases by the end of 2027, according to new analysis from the Bank of England. This is partly because around 37% of fixed rate mortgages were secured before rates started to rise in 2021. The full impact of higher interest rates has not yet hit these people.
In total, 4.4 million mortgage accounts (50%) are expected to refinance onto higher rates. Of these, 2.7 million (31% of all mortgages) are expected to refinance onto a rate above 3% for the first time and roughly 420,000 (5% of all mortgages) will see payments increase by more than £500 per month. These people are at high risk of payment shock. Of course, this is a forecast for the next 2 years, and there are many economic factors which could affect these numbers positively or negatively.
It isn’t all doom and gloom though. For others, recent and predicted falls in the base rate will lead to decreasing mortgage payments. In December, the governor of the Bank of England, Andrew Bailey, suggested interest rates could fall to 3.75% by the end of 2025. 27% (2.4 million) of mortgage accounts are expected to see monthly payments decrease between now and Q4 2027. 1.7 million (19% of all mortgages) of these are on variable rates, while the remaining 800,000 are currently fixed above prevailing rates.
The analysis suggests the typical mortgage holder coming off a fixed rate in the next two years, would see their monthly mortgage repayments increasing by around £146. This was less than the £180 suggested in the Bank’s June report. Many households are still facing pressures from the increased cost of living and higher interest rates, but the promising sign is that the share of households behind on their mortgage payments is historically low. This indicates borrower resilience and perhaps a shift in spending priorities.
Many are also choosing to borrow over longer terms to reduce monthly payments, but this means paying more interest over the term, and for some, affording mortgage payments into retirement.
Of course, these are all just statistics, and based on the assumption that customers will remortgage or switch product based on the same level of borrowing. This won’t be the case as clients may move, downsize, pay off all or part of their balance, remortgage early, or look to raise additional funds. In reality, everyone’s situation is different. We are only really interested in whether we and our families can continue to afford our own mortgage payments!
As obvious as it may seem, the best advice we can give is to seek advice! Speak to a professional mortgage adviser, who will be able to talk through all of your circumstances and requirements, and source the whole of market for the cheapest suitable solution for you. If your existing deal is coming to an end, get the ball rolling and have an initial chat as soon as possible. Don’t bury your head in the sand.
