Close to 4.5 million households across the United Kingdom are bracing for a significant increase in their monthly mortgage payments, with an average annual rise of £768 expected. This financial shock will hit as their fixed-rate deals, secured during a period of historically low interest rates, come to an end over the next two years.
The Scale of the Mortgage Payment Shock
The Bank of England issued the stark warning in its latest Financial Stability Report. It revealed that just under half of all mortgage holders will see their bills climb because they are exiting loans taken out when borrowing costs were at rock bottom. While recent reductions in the Bank Rate have brought some relief, the central bank cautioned that many will still face higher payments.
On average, these households will see their monthly mortgage repayments increase by £64, totalling an extra £768 per year. The Bank was clear, however, that some homeowners will confront "much larger increases" depending on their individual circumstances and the specific terms of their expiring deals.
Interest Rate Rollercoaster Drives the Crisis
This situation is a direct consequence of the dramatic shifts in monetary policy over recent years. The Bank of England began raising interest rates from near-zero levels in December 2021, with the base rate eventually peaking at 5.25% in the summer of 2023. After a period of stability, cuts began the following year, bringing the rate down to its current level of 4%.
Many borrowers locked in fixed-rate mortgages during the era of ultra-low rates, insulating themselves from immediate hikes. The pain is deferred, not avoided. The report states that over the next three years, 43% of mortgage accounts—or 3.9 million—will refinance onto higher rates. This figure includes both fixed and variable rate mortgages.
A Mixed Picture for Borrowers
The financial outlook is not uniformly bleak for all homeowners. The Bank's analysis shows a divided landscape: approximately one third of borrowers, equating to three million households, will actually see their payments decrease in the coming three years, likely because they are moving off older, higher variable rates.
Nevertheless, for the 4.5 million coming off cheap fixes, the end of their deal will bring a sharp reality check. The figures highlight that even if, as anticipated, the Bank Rate is cut again to 3.75%, not every borrower will benefit from this pre-Christmas gift. The projected increase has improved since July, when the average borrower faced a £107 monthly hike, but the rise remains substantial for millions.
The message from Threadneedle Street is unequivocal: despite the recent downward trend in rates, a significant portion of the country must prepare for a challenging period of mortgage repayment increases as the legacy of the low-rate era finally expires.
