Nearly four million households are set to see their mortgage bills rise over the next three years, the Bank of England has warned.
Around 43 per cent of all UK mortgage holders will need to refinance at higher rates, despite recent falls in borrowing costs.
This equates to 3.9 million homes that will have to refinance at higher rates.
The Bank’s latest Financial Stability Report shows that 4.5 million fixed-rate deals will end in the next two years alone, leaving many families facing bigger monthly payments when they remortgage.
Officials said that while rates have eased slightly, “there are still some households that are expected to face higher mortgage payments over the next three years.”
The warning comes even as interest rates have fallen from their peak of 5.25 per cent to the current level of four per cent.
Those refinancing their mortgages can expect to pay an additional £64 per month on average, translating to roughly £768 extra annually.
However, the Bank of England cautioned that certain homeowners will encounter "much larger increases" when their current deals ends.
It's not all bad though. Around three million households, or about a third of all borrowers, are expected to see their monthly mortgage payments fall over the same period.
Mortgage disaster for millions | GETTY
This split reflects the varied timing of when homeowners locked into their current mortgage arrangements, with those who secured deals during the era of ultra-low rates facing the steepest adjustments.
The projected average increase has actually improved since July, when borrowers coming off fixed deals faced an estimated £107 monthly rise.
The surge in costs stems from the exceptional circumstances of the pandemic period. Between March 2020 and December 2021, the Bank of England maintained its base rate at a historic low of just 0.1 per cent in response to COVID-19.
During this window, millions of homeowners secured mortgage deals with exceptionally favourable terms, benefiting from monthly repayments far lower than would typically be available.
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Although rates have since declined to 4 per cent, this remains substantially higher than the pandemic-era floor
| GETTYThe central bank began raising rates in December 2021, eventually reaching 5.25 per cent by summer 2023 as the cost of living crisis intensified.
Although rates have since declined to four per cent, this remains substantially higher than the pandemic-era floor.
Consequently, borrowers whose fixed deals were arranged during that period of rock-bottom rates now face a significant adjustment when they come to remortgage.
The mortgage market is already responding to expectations of further rate reductions. Analysts anticipate the base rate will fall to 3.75 per cent, with additional cuts forecast for 2026.
Several major lenders have moved to reduce their fixed-rate offerings in recent weeks
| GETTYSeveral major lenders have moved to reduce their fixed-rate offerings in recent weeks. Barclays has trimmed rates on some products by as much as 0.3 percentage points, whilst HSBC has implemented reductions of up to 15 per cent on its deals.
TSB has also lowered selected fixed-rate mortgages by 0.1 percentage points.
Santander has been particularly aggressive, with its fixed-rate products reaching a three-year low of 3.55 per cent.
Swap rates, which influence the pricing of fixed-rate mortgages, have also edged downwards following the Autumn Budget, potentially signalling further competitive moves from lenders.
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