The Bank of England’s Financial Policy Committee has warned that 5.2 million mortgage holders – including landlords – could face higher repayments by the end of 2028 as elevated rates persist.
Two-thirds of borrowers could see bills rise
Based on overnight index swap rates, around 58 per cent of all mortgage holders will see their payments increase when they come to remortgage over the next two years, according to the FPC’s latest assessment.
The committee said higher mortgage rates and energy prices are putting pressure on household finances, but stressed that increases would need to be “large and persistent” to have a widespread impact on people’s ability to repay.
Monthly mortgage debt servicing costs are set to rise but will remain “well below historical peaks” at an aggregate level, the FPC concluded.
The warning comes as landlords continue to absorb higher borrowing costs following recent mortgage rate increases driven by Middle East tensions. Average two- and five-year fixed rates have climbed since early March, with two-year deals now averaging 5.40 per cent – their highest level in a year.
Product choice tightens significantly
The total number of mortgage products on offer has fallen from around 8,500 to 7,000 since instability in the Middle East began affecting global markets. However, the FPC noted there are still more products available than after the 2022 mini-Budget crisis or the first Covid-19 lockdown.
The committee said the average rise in mortgage rates has stayed below the increase in corresponding swap rates, estimating 80-basis-point and 70-basis-point rises in average two- and five-year fixed rates respectively as of its 27 March meeting.
Richard Pinch, senior director of risk at Broadstone, said: “The Bank of England’s latest Financial Policy Committee report highlights how the current conflict in Iran is driving heightened risks to financial stability.
“While the UK banking system remains resilient, the concern is clearly shifting towards higher borrowing costs, pressure on household finances and potential stress in debt markets if macroeconomic conditions deteriorate further.”
This follows Residential Landlord’s March analysis of transaction data, which found property market activity softening as geopolitical uncertainty weighs on buyer confidence. The FPC warning suggests refinancing landlords face similar headwinds.
Banks remain appropriately capitalised
Despite the challenging outlook, the FPC said UK banks remain “appropriately capitalised” and would be able to continue supporting households and businesses even if conditions were “substantially worse” than expected.
The committee said there was no evidence that banks were restricting lending to protect their capital positions, though it noted it was monitoring the withdrawal and repricing activities of lenders in recent weeks.
UK households remain resilient, with aggregate indebtedness continuing to be low by historical standards. The FPC’s loan-to-income flow limits and the Financial Conduct Authority’s responsible lending rules are protecting households from unsustainable debt levels.
The Bank of England’s Financial Stability Report stressed that while risks have increased, the banking system has sufficient buffers to withstand further shocks.
Opinion
For landlords already facing higher taxes, regulatory costs and RRA compliance burdens, the prospect of another wave of mortgage payment increases adds to an already challenging picture. The FPC’s message is that most borrowers should be able to cope – but “cope” is a long way from “thrive”. Those remortgaging this year would be wise to lock in rates sooner rather than later.
