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

Millions of Britons on fixed-rate mortgages face an average payment increase of £3,000 a year from 2023, 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 the rising pressure on Britons during the cost of living crisis is not expected to challenge the resilience of UK banks – still well equipped to support lending according to the Bank.

Bank of England governor Andrew Bailey said the “economic environment is challenging” and said “household and business finances are under greater strain” – but stressed that many are better placed to deal with pressures than during the 2008 financial crisis.

The Bank said around one-third of mortgage payers – 2.7 million households – are expected to see monthly increases of over £100 by the end of 2023. Over six million households will see mortgage payment hikes by the end of 2025.

The warning comes as the latest grim 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 as firms are under increasing pressure to increase earnings.

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 ONS 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 the non-bank sector next year following the recent mini-budget market turmoil that saw the near-collapse of some pension 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 then-PM Liz Truss and her chancellor Kwasi Kwarteng’s disastrous mini-Budget.

Non-banks are defined as any financial institution that is not a bank, and includes pension funds and liability-driven investment (LDI) funds – the investment strategies at the centre of the pension crisis sparked by the mini-budget chaos.