Nikka Sulton

More than one million additional UK homeowners are now expected to face higher mortgage repayments by the end of 2028, according to the Bank of England. The Bank says changing economic conditions have increased the number of borrowers likely to see their monthly mortgage costs rise over the coming years.

Its latest Financial Stability Report estimates that just over five million homeowners will be paying more on their mortgages by the end of 2028. This is up from the four million borrowers the Bank forecast in December.

Although the number of affected households has increased, the Bank believes the average rise in repayments will be less severe than many borrowers experienced during the recent mortgage rate surge.

Average mortgage increases expected to be smaller

The report suggests that homeowners coming to the end of a fixed-rate mortgage over the next two years can expect their monthly repayments to increase by around £45 on average.

This is considerably lower than the average increase of approximately £120 per month faced by borrowers who refinanced between late 2022 and the end of 2024, when mortgage rates rose sharply following a period of rapidly increasing interest rates.

While the overall picture has improved, the Bank warned that not every homeowner will experience only modest increases.

Borrowers on ultra-low fixed rates face larger rises

Around 750,000 homeowners are still benefiting from fixed-rate mortgage deals with interest rates below 3%.

As these products come to an end during the year, many borrowers are expected to refinance onto significantly higher rates, increasing their monthly repayments by an average of £170.

For households that secured exceptionally low mortgage rates during recent years, the transition to today’s higher borrowing costs is likely to have a noticeable impact on monthly budgets.

Fixed-rate mortgages still dominate the market

The Bank noted that more than 80% of UK mortgage holders are currently on fixed-rate products.

These mortgages protect borrowers from changes in interest rates for an agreed period, typically two or five years. Once the fixed term expires, homeowners must either move onto their lender’s standard variable rate or arrange a new mortgage deal.

The report also estimates that more than two million borrowers whose two-year fixed-rate mortgages expire before the end of 2028 are likely to refinance at rates broadly similar to those they currently pay.

However, unlike earlier forecasts, these homeowners are no longer expected to benefit from lower mortgage payments in the years ahead, reflecting changes in the wider economic outlook.

Higher rates driven by global uncertainty

The Bank linked the revised mortgage forecasts to recent global economic developments, which have influenced expectations for inflation and interest rates.

Rising geopolitical tensions disrupted global energy markets, pushing oil and gas prices higher. Increased energy costs added pressure to inflation, prompting financial markets to scale back expectations of rapid interest rate cuts.

As lenders adjusted to these higher funding costs, mortgage rates also increased for both new buyers and existing homeowners looking to remortgage.

Market data showed that the average two-year fixed mortgage rate climbed significantly during the period before easing slightly in recent months, although borrowing costs remain well above the historic lows seen only a few years ago.

Wider economic pressures remain

Alongside its mortgage analysis, the Bank’s Financial Stability Report highlighted broader risks facing the UK economy.

It noted that lower-income households remain particularly vulnerable to rising living costs because a larger proportion of their income is spent on essential expenses such as food, housing and energy. This leaves less flexibility to absorb higher prices.

Despite these challenges, the Bank concluded that household finances overall remain relatively resilient, with debt levels still low compared with historical averages.

Other risks highlighted in the report

The Financial Stability Report also examined several longer-term financial risks beyond the housing market.

Among these were growing concerns over cyber security as artificial intelligence continues to develop rapidly, alongside signs that valuations of AI-related companies may be becoming increasingly stretched.

While these issues remain separate from the mortgage market, the Bank said they form part of the wider risks facing the UK’s financial system.

What homeowners should expect

Although the Bank now expects more homeowners to experience higher mortgage repayments than previously forecast, the overall increases are expected to be less severe than those seen during the peak of the recent mortgage market volatility.

Nevertheless, borrowers whose low fixed-rate deals are ending should prepare for higher monthly costs and review their mortgage options well before their current deal expires.

With inflation, interest rates and global economic conditions continuing to influence mortgage pricing, homeowners may need to plan carefully as they navigate a higher-rate environment over the coming years.