Bank of England: Interest rate rises haven't fully hit UK yet - warning

Household finances remain stretched and the full impact of higher interest rates and mortgage pricing has yet to fully hit the UK, the Bank of England has warned.

The Bank’s latest Financial Stability Report for December 2023 highlighted that around 45% of fixed-rate mortgage deals agreed before the end of December 2021 – when interest rates started rising - are yet to renew.

Its report said around 55% of mortgage accounts  - around 5m - have repriced since rates started to rise in late 2021, while higher rates are expected to affect around 5m households by 2026. 

For the typical owner-occupier mortgagor rolling off a fixed rate between the second quarter of 2023 and the end of 2026, their monthly mortgage repayments are projected to increase by around £240, or around 39%.

The report said interest rate rises may have peaked but the cost of borrowing is likely to remain higher for longer.

The Bank said: “Household finances remain stretched by increased living costs and higher interest rates, some of which has yet to be reflected in higher mortgage repayments. Arrears for secured and unsecured credit remain low but are rising as the impact of higher repayments is felt by borrowers.”

It comes as UK Finance revealed that mortgage lending remained weak during the third quarter amid the higher cost of living and rising interest rates.

Lending for house purchases fell throughout the third quarter, with first-time buyer activity down by almost one fifth and home movers by one quarter compared with the same period of 2022.

Mortgage arrears remain low but rose 9% on a quarterly basis to 99,840 at the end of the third quarter, the banking trade body said.

Eric Leenders, managing director of personal finance at UK Finance, said, “While the cost of living continues to challenge households, many are managing to avoid using overdrafts and still have a savings cushion to draw on. 

“Sustained house prices and rising mortgage rates have meant mortgage lending remained weak last quarter, and we expect this to continue in the fourth quarter of this year.”