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Over 40 per cent of mortgage payments will rise in the next year

Christina Hoghton
Written By:
Christina Hoghton
Posted:
Updated:
12/07/2022

Those with fixed rate mortgages are protected until their current deals ends

The Bank of England (BoE) told the Treasury Committee that it expected 40 per cent of all mortgages to go up over the next 12 months.

An increase in borrowing, as a result of subsequent base rate rises to bring down inflation, are expected to increase mortgage payments for millions of borrowers, the central bank has admitted.

Sarah Breeden, executive director for Financial Stability Strategy and Risk at the Bank of England, told the committee’s MPs that interest rate increases would impact around 20 per cent of mortgages immediately.

She referred to these mortgages as ‘floating’, so on a variable or Standard Variable Rate rather than a fixed rate.

Around a quarter of other borrowers, those on a fixed rate, are expected to come to the end of a deal in the next 12 months. Most of these will see a rise in their mortgage repayments.

Breeden: “Of that 100 per cent stock of mortgages actually only 40 per cent are going to see higher rates in the immediate period ahead.”

She added that because a large number of borrowers, 80 per cent, were on a fixed rate, there was a “natural buffer” which meant the increase in mortgage payments would take the form of a “slower burn”.

Breeden said the position of highly indebted households at the start of the year would not be that different at the end of the year.

She explained that households had built up savings during Covid and this has also helped act as a buffer. Breeden said the bank was watching the situation carefully to see whether these savings would be used up and put more of a squeeze on households the end of the year approaches.

Andrew Bailey, governor of the Bank of England, said there was some evidence of a squeeze starting.

“We have picked up from some reports from consumer credit funds around the country of some increase in customers wanting to rearrange their payment schedules.”

Bailey and Breeden told MPs that the UK’s banking system was resilient and the BoE did not have concerns about its stability.

“We don’t see risk but there will be pockets of strain but not widespread issues with debt affordability,” added Bailey.

Bailey said evidence of this was that the UK’s banking framework “did not need to be adjusted” for Covid or for the war in Ukraine.

Earlier this month the central bank said mortgage borrowers will see a contraction in their disposable income after essential expenses are accounted for, but the proportion of severely affected households will not rise significantly, the BoE has suggested.

The BoE’s Financial Stability Report found that in the first quarter of 2022, the share of mortgaged households with a high cost of living ratio was 1.7 per cent, up from 1.4 per cent in 2020. It said this was “around the historical average” and significantly below the peak of 2.8 per cent seen before the global financial crisis.