The Bank of England warned today that mortgage repayments will rise, but said banks are well capitalised, on the release of its latest financial policy record.
“Household finances remain stretched by increased living costs and higher interest rates, some of which has yet to be reflected in higher mortgage repayments,” the BOE said in a statement today to mark its latest financial summary.
“Arrears for secured and unsecured credit remain low but are rising as the impact of higher repayments is felt by borrowers.”
The bank said that more than half of mortgage holders, comprising 55% of mortgage accounts, have repriced their mortgages since interest rates began to rise in 2021.
Those higher rates of interest are expected to affect the mortgage payments of five million householders.
Monthly mortgage repayments for the typical homeowner for fixed-rate mortgages set between the second quarter of 2023 and the end of 2026 will increase by 39%, or an average of £240 per month, the bank said while outlining household debt vulnerabilities.
The BOE warned that “the average debt-servicing burden will increase” as higher mortgage rates continue to flow through to UK households.
However, it said the UK banking system is “well capitalised” with high levels of liquidity and the capacity to support households and businesses even if financial conditions deteriorate.
It said net lending “remains subdued”, driven by lower demand for credit and a tightening of risk appetite among the banks, stemming from a tightening of credit conditions in the past two years.
“Some forms of lending, such as to finance commercial real estate investments, buy-to-let, and highly leveraged lending to corporates – as well as lenders that are more concentrated in those assets – are more exposed to credit losses as borrowing costs rise,” the bank said in its financial policy summary.
According to the bank's latest data, the share of mortgages with loan-to-income ratios of 4.5 or above in the third quarter of this year was 5.5%, which the bank said was nearly half of the 10% of mortgages that had high loan-to-income ratios in the second quarter of 2022.