The Bank of England has confirmed that 750,000 households are set to lose an extra £170 per month when they renew their mortgages, as pressure from the Iran war and global financial risks drive up borrowing costs. The warning comes from the Bank's latest Financial Stability Report, which also reveals that over five million homeowners are now projected to face higher payments by the end of 2028, up from a previous estimate of 3.9 million.
Impact on Mortgage Holders
According to the Bank, the average homeowner rolling off a fixed-rate mortgage in the next two years will see a £45 increase in monthly payments. However, the most severe impact will be on 750,000 households currently paying less than 3% interest, who will roll off their fixed-rate deals in 2026 and face an average rise of £170 per month. The average rate for a two-year fixed mortgage with a 75% loan-to-value now stands at 4.92%, which is 0.72 percentage points higher than in December.
Broader Financial Risks
The Bank's report highlights that higher borrowing costs and energy prices "could place additional pressure on household finances." It also warns of risks from rising equity prices driven by AI-related companies, which have increased market concentration in global indices. Sarah Breeden, the deputy governor for financial stability, noted that hedge funds active in UK government bond markets could pose a spillover risk. "There is, of course, the risk of a spillover, either from one international bond market to another, or from the equity markets and AI firms to UK government bond markets," she said.
