Mortgage payments to surge by £3,000 a year, says Bank of England

Four million mortgage borrowers set to see monthly payments jump in 2023

Millions of Britons on fixed-rate mortgages face an average payment increase of £3,000 a year, the Bank of England has warned.

Around four million mortgage borrowers are set to see their monthly payments jump over the next year as the risk of Britons defaulting on debt has risen, the Bank said.

People with a fixed-rate loans due to expire by the end of 2023 are facing average repayment hikes of around £250 a month as they are forced to move onto a higher interest rate.

This would mean that mortgage costs surge by £3,000 a year for many families who are already seeing their finances stretched to breaking point during the cost of living crisis.

The new estimate is based on market lenders’ interest rates at the end of November. The Bank’s base rate is currently set at 3 per cent, but is set to rise again on Thursday.

Falling real incomes, hiked mortgage costs and higher unemployment will all place “significant pressure on household finances” in 2023, the Bank said on Tuesday.

The latest report from the Bank’s Financial Policy Committee (FPC) also warned that “the risk that indebted households default on loans, or sharply reduce their spending, has increased”.

But Bank of England governor Andrew Bailey said he believes there will be fewer home repossessions than seen in previous financial crises due to support from banks.

“I do hope and believe that more customers will be supported through this and we won’t get the level of repossessions … that went on this past.”

The Bank said average mortgage rate rises in 2023 would mean the typical household would see payments rising from £750 to £1,000 – equating to around 17 per cent of average pre-tax incomes. Over six million households will see mortgage payment hikes by the end of 2025.

“There is nothing easy about the situation we face at the moment,” said Mr Bailey. “Four million households in this country are exposed to rate rises over the next year, and that’s a very substantial number.”

Labour blamed the “self-inflicted” financial crisis sparked by Liz Truss’s disastrous mini-Budget for higher interest rates and mortgage payments.

Pat McFadden, shadow chief Treasury secretary, said it would “leave millions paying more on their mortgages next year … This is a Tory penalty caused by their mismanagement.”

The warnings come as the latest grim economic figures showed that Britain’s unemployment rate has risen again and wage growth has further slumped.

The Office for National Statistics (ONS) said the rate of UK unemployment rose to 3.7 per cent in the three months to October, up from 3.6 per cent in the previous quarter.

Regular wages, excluding bonuses, rose by 6.1 per cent in the three months to October. But real wage growth was 4.2 per cent weaker when CPI inflation was included, the second biggest fall since records began in 2001.

The latest data also revealed a widening gap between private sector and public sector pay – growing by 6.9 per cent and 2.7 per cent respectively – among the biggest differences seen on record.

The wave of strikes across the country will continue into 2023 unless the government changes its stance and commits to pay talks with unions, the TUC has warned.

Frances O’Grady, general secretary of the TUC, called for urgent action to help public sector workers – saying they were losing £76 a month on average from pay failing to keep pace with inflation.

The pay row comes as the latest figures show 417,000 working days were lost to strikes in October – the highest number since 2011. “That’s been largely driven by the rail and mail strikes,” said Sam Beckett, ONS’ head of economic statistics.

Meanwhile, the Bank of England’s FPC also announced that it will launch the first ever stress test on pension funds and others next year following the recent mini-Budget market turmoil that saw the near-collapse of some funds.

It said more work needs to be done to prevent non-banks posing a risk to financial stability, after gilt yields surged at historic rates in September in the wake of Ms Truss and her chancellor Kwasi Kwarteng’s mini-Budget fiasco.

Mr Bailey also said he believes the UK banking sector still needs some post-financial crisis regulations after a raft of post-Brexit reforms were announced by chancellor Jeremy Hunt last week.

“It’s important to recognise that Brexit is an important moment in time, and it’s right that we review the regulation that we’ve inherited from the past,” the governor said.

But Mr Bailey added that “the notion that we’re past the financial crisis and we therefore don’t need the regulations that we had post the financial crisis – I would not go along with that view”.