More households are now projected to see increases in mortgage repayments over the next three years as rates remain elevated, the latest Bank of England Financial Stability Report shows.
However, the median increase is projected to be materially smaller than the increases already experienced over the last few years.
The average rate on a two-year fixed rate at 75% LTV is now 4.92%, 72 basis points higher than at the time of the December report. The average rate on a two-year fixed 90% LTV mortgage is 5.32%, 75 basis points higher than in December, reflecting the increases in market rates following the conflict in West Asia.
Higher quoted rates mean more households are projected to see increases in their mortgage repayments when they refinance, the Bank's data shows. A little over 5 million households are projected to see their repayments increase by the end of 2028, compared to nearly 4 million at the time of the December Financial Stability Report.
However, for the typical residential mortgagor rolling off a fixed rate in the next two years, their monthly mortgage repayments are projected to increase by £45, or £540 a year. This is significantly smaller than increases experienced over the last few years – the median monthly repayment increased by approximately £120 between the end of 2022 and end of 2024.
Based on the current market curve for interest rates, most borrowers on a two-year fixed mortgage expiring by the end of 2028 are projected to remortgage close to their existing rate and therefore see little change in repayments. However, these borrowers are now unlikely to see repayments fall over coming years as was forecast prior to the war in Iran.
But there are still a number of households which are projected to see repayments increase significantly, especially those on a fixed rate mortgage from before interest rates began increasing from 2022. Nearly 750,000 households that are paying less than 3% interest will be rolling off fixes in 2026 and will see an average increase of £170 per month in repayments.
