Millions in UK face higher mortgage payments

The number of UK homeowners expected to face higher mortgage repayments by the end of 2028 has increased to more than five million, according to the latest Financial Stability Report from the Bank of England. The revised forecast is up from four million projected in December, reflecting the economic impact of the recent conflict involving Iran.

Despite the increase in the number of affected households, the Bank said the average rise in monthly mortgage costs will be less severe than during the sharp interest rate increases seen in recent years. Homeowners moving from fixed-rate mortgages over the next two years are expected to pay around £45 more each month on average. By comparison, borrowers who refinanced between late 2022 and the end of 2024 typically saw monthly repayments increase by around £120.

The largest increases will be felt by around 750,000 homeowners currently paying mortgage rates below 3%. As these low-rate deals expire during 2026, they are expected to face average monthly repayment increases of approximately £170.

One homeowner, 33-year-old Saima Siddiqui from Surrey, said she expects her repayments to rise by about £200 a month when her five-year fixed-rate mortgage at 1.8% ends. She said the increase will require tighter budgeting and could affect her standard of living if wages fail to keep pace with higher housing costs.

More than 80% of UK mortgage borrowers have fixed-rate mortgages, meaning their interest rates remain unchanged until their agreed term—typically two or five years—expires. While more than two million borrowers on two-year fixed-rate deals are still expected to refinance at rates similar to their current ones, the Bank noted they are now less likely to benefit from lower repayments than previously anticipated.

The Bank attributed much of the change in outlook to the economic effects of the Iran conflict. Disruptions to global energy markets, including the temporary closure of the Strait of Hormuz, pushed up oil and gas prices, increasing inflationary pressures and reducing expectations for future interest rate cuts. Higher borrowing costs have since been reflected in mortgage pricing across the market.

According to Moneyfacts, the average two-year fixed mortgage rate rose from 4.83% at the beginning of March to a peak of 5.90% in April before easing slightly to 5.49%.

The report comes as the UK prepares for a change in political leadership, with Andy Burnham expected to succeed Sir Keir Starmer as Labour leader and prime minister. Separately, the Office for Budget Responsibility warned that the UK’s public finances remain under significant pressure, projecting that national debt could approach 300% of GDP over the next 50 years without corrective action. It said stabilising debt levels would require spending reductions equivalent to the education budget or revenues similar to those raised through corporation tax.

The Bank also highlighted that lower-income households and renters remain particularly vulnerable to rising energy costs because they spend a greater proportion of their income on essential goods and services. Nevertheless, it concluded that household finances remain broadly resilient, with debt levels relatively low by historical standards and little evidence that rising debt will significantly reduce consumer spending.

In addition to its economic assessment, the Bank warned that rapid advances in artificial intelligence have increased cybersecurity risks and noted that valuations of AI-related stocks appear increasingly stretched, raising concerns about the potential formation of a market bubble.