The Bank of England’s Financial Policy Committee has warned that five million households are set to face higher borrowing costs by the end of 2028, representing an increase of one million on the forecast made in December. The revision comes as mortgage lenders respond to rising swap rates, pushing fixed-rate deals upward amid continuing cost of living pressures.
According to Moneyfactscompare.co.uk, the average two-year fixed residential mortgage rate currently stands at 5.59 per cent, while the average five-year fixed rate is 5.61 per cent. For a borrower taking out a typical two-year fixed mortgage at 5.59 per cent on a £250,000 loan over 25 years, monthly repayments would amount to £1,548.
Why are mortgage costs rising?
Rachel Springall, finance expert at Moneyfacts, said: “The prolonged tensions in the Middle East have hit the swap rate market, in turn driving up mortgage costs, as lenders monitor swap rates to help them price fixed-rate deals.”
She added: “It will be incredibly frustrating for borrowers to see rates rise back up to where they were a month ago. The positive progress over recent weeks now feels all but lost, but what the market needs is a period of stability.”
Impact on borrowers
The turbulence has prompted lenders to withdraw some products from the market. Springall noted: “Lenders have resorted to pulling some deals temporarily to reconsider their pricing plans, with over 100 deals withdrawn from sale in the last week alone.”
This leaves many existing homeowners facing uncertainty as they approach the end of their current fixed-rate terms. The Bank of England’s updated forecast suggests the scale of the problem is significantly larger than previously thought, with an additional one million households now expected to be affected by higher mortgage costs within the next two and a half years.
What borrowers should do
Springall advised that borrowers who need to remortgage this year should act promptly. “Any existing borrower who needs to remortgage this year could lock in a new deal now with their existing lender ahead of time. But it’s also wise to seek advice from a broker to get a good sense of what other deals may be available too,” she said.
She emphasised the value of professional guidance during volatile conditions: “Brokers are an anchor during turbulent times as they can help borrowers keep abreast of changes and be there step by step when going through a mortgage application.”
The warning from the Financial Policy Committee underscores the ongoing pressure on household finances. With inflation still affecting everyday living costs, the combination of higher mortgage repayments and stagnant wage growth could stretch budgets further. The committee’s revised forecast reinforces the need for borrowers to plan ahead and explore all available options before their existing deals expire.
