Average monthly mortgage payments for 5 million households set to soar by £240

Around five million UK households will see their monthly mortgage payments rise significantly before the end of 2026, according to the Bank of England’s Financial Policy Committee (FPC).

Interest rates have risen rapidly from 0.1% in December 2021 to the current rate of 5.25%, but the full impact has yet to be felt. This is because higher interest rates tend to take a while to affect mortgage holders, as those on fixed-rate deals are temporarily protected.

Another five million households will see their fixed-rate mortgage deal end before January 2027. The FPC says that a typical homeowner rolling off a fixed-rate deal before the end of 2026 will be looking at a 39% increase in their monthly mortgage payments – this is equivalent to £240 a month.

Current mortgage rates

Although they've fallen slightly over recent months, mortgage rates are still relatively high. In October, rates on 75% loan to value (LTV) mortgages fixed for five years were hovering around the 5% mark. For 90% LTV mortgages fixed for five years, rates were about 5.4%

Half a million likely to struggle

According to the FPC, around half a million households in the UK - those that spend more than 70 per cent of their income keeping up with debt repayments – may struggle to cover their mortgage costs.

How homeowners are coping with higher costs

The FPC reports some people are increasing the terms of their mortgages to cope with rising costs.

New mortgage lending at terms longer than 35 years has increased from 5% in the first quarter of 2022 to 12% in the third quarter of 2023. And 28% of new mortgage lending to owner-occupiers in quarter three of 2023 was extended on terms longer than 30 years.

Over the same period, 11% of those remortgaging extended their existing term.

The FPC says “a small number” of other households have moved to interest-only mortgages to reduce costs.

Landlords passing on increased costs

The FPC reports many buy-to-let landlords are passing on higher mortgage costs to renters. This assertion is supported by figures showing annual new-lets rental inflation stood at 10.5% in September and overall annual rental inflation stood at 6.1% in October.

Struggling?

If higher interest rates and the rising cost of living mean you’re struggling to get by, you may be unsure where to turn. There is help available though and it’s always better to act sooner rather than later.

Find out what to do if you’ve fallen behind, or you’re worried about falling behind with your mortgage payments.

If your landlord is looking to put your rent up, make sure you know your rights. Generally, they can only increase it once a year and the increase has to be reasonable. Find more information on your rights and what to do if you’re struggling to pay. 

You can also find budgeting tips and information on getting support if money worries are affecting your mental health in our blog on how to manage rising rents and mortgage interest rates. 

And why not use our free benefits calculator to check you’re not missing out on financial support you're entitled to.

If you’re on a low income or claim benefits, you may be able to get a council tax reduction of up to 100%. Check to see if you’re eligible.

Local councils have also been given a share of £842m to help families struggling with the cost-of-living crisis. Visit your local council’s website to see what’s available in your area.

And if you need free debt advice, we're here 24/7 online, or you can give us a call during our office opening hours. You may be surprised at the range of support that's available. Get in touch today.