Bank of England mortgage alert that 800k will have difficulties in payments

Mortgage warning as 800,000 households struggle to make their payments: Bank of England issues stern warning amid rising interest rates

The Bank of England has warned that nearly a million households may be unable to repay their mortgages next year.

The central bank has estimated that about 800,000 households will struggle to handle their mortgages in 2023 — up from about 500,000 last year and the highest since the run-up to the 2008 financial crisis.

The warning will set off alarm bells among millions looking to buy a home. The average mortgage now carries an interest rate of over 6 percent, compared to 2.35 percent a year ago.

Under Pressure: Chancellor Kwasi Quarting with Bank of England Governor Andrew Bailey

Under Pressure: Chancellor Kwasi Quarting with Bank of England Governor Andrew Bailey

That adds an extra £5,000 to the annual interest payments for the average family with a two-year fixed-rate mortgage of £200,000, according to Moneyfacts.

Lender Aldermore yesterday launched new mortgages, including a two-year fixed interest rate of 9.28 percent for a borrower with a 10 percent deposit.

And about two million households currently in fixed-rate deals will have to remortgage by 2024 as their deals expire.

The bank’s financial policy committee said in its report that higher interest rates mean that 2.8 percent of households, or 800,000 people, will spend 70 percent of their income on housing debt and necessities in 2023.

At this point, families are likely to bear the arrears. Last year, 1.7 percent of households were in the same situation.

The Bank’s committee said in its report: “The continued rise in the cost of living and interest rates will put increasing pressure on the finances of UK households in the coming months and make families more vulnerable to shocks.”

Borrowing costs have risen since December, when the Bank began raising interest rates at an unprecedented pace to control the rising cost of living.

Rates are now at 2.25 percent, but with inflation nearing a 40-year high of 9.9 percent, more hikes are expected.

It is believed that the Bank, led by Governor Andrew Bailey, may raise interest rates by another 0.75 percentage point – or even by 1 percentage point – at its next meeting in November. This can lead to higher mortgage rates.

The chaos in the markets after the Kwasi Kwarteng mini-balance on September 23 made things worse for borrowers.

Government debt or “gold” prices plummeted, as investors worried about the cost of the Karting tax cuts. This raised the interest rate on financial instruments known as swaps, which are linked to gold.

Mortgages are calculated with reference to the swap rate – so their cost is also inflated.

“We expect arrears to rise from 0.7 percent of mortgages now to 1.6 percent in 2024,” said Andrew Wishart, real estate economist at Capital Economics.

“The risk is that higher rates could tip home prices, leaving a lot of mortgage holders in negative equity in echoes of what happened in the 1990s,” said Michael Hewson, an analyst at CMC Markets.

The Leeds Building Society said current mortgage rates are the lowest affordable since records began. Rising home prices and rising household debt mean that families are spending a greater percentage of income on mortgages than ever before.

Leeds claimed that today’s average mortgage rates of 6.43 per cent are equal to 25.7 per cent in 1980.

What to do if you need a mortgage

Borrowers who need to find a mortgage because their existing fixed-rate deal is coming to an end, or because they’ve agreed to buy a home, are urged to act but not panic..

Banks and building societies are still lending and mortgages are still being accepted with applications accepted.

However, rates change quickly, and there is no guarantee that deals will stick and won’t be replaced by mortgages that charge higher rates.

This is Money’s best mortgage rate calculator powered by L&C that can show you deals that match the value of your mortgage and property.

What if I need to re-travel?

Borrowers should compare rates, talk to a mortgage broker, and be prepared to work to secure a rate.

Anyone with a fixed-rate deal that expires within the next six to nine months should consider how much a remortgage will cost now — and consider a new deal.

Most mortgage deals allow a fee to be added to the loan and then only charged when you take it out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I’m buying a house?

Those who have agreed to buy homes should also aim to lock in prices as early as possible, so they know exactly what their monthly payments will be.

Homebuyers should beware of overexerting themselves and be prepared for the possibility of home prices falling from their current high levels, due to high mortgage rates limiting people’s ability to borrow.

How to compare mortgage costs

The best way to compare mortgage costs and find the right deal for you is to talk to a good broker.

You can use our best mortgage rates calculator to show matching deals for your home value, mortgage size, term needs and flat rates.

Be aware that rates can change quickly, so the advice is that if you need a mortgage to compare rates then speak to a broker as soon as possible, so they can help you find the right mortgage for you.

> Check out the best fixed rate mortgages you can apply for


Leave a Comment