Mortgage costs for four million will rise by 3,000 pounds next year warns bank of england
Homeowners with a fixed-rate contract that expires at the end of 2023 will face an increase of 3.000 – an average of about £250 per month if they switch to higher interest rates.
That means the typical household in this situation is paying 17 percent of pre-tax income to service the mortgage – down from 12 percent.
Payments will increase by at least £100 for 2.7 million mortgage payers.
And according to the bank's latest Financial Stability Report, more owners will default on their payments as they also struggle with the cost of living crisis.
Sam Richardson, deputy editor of which? Money, said, "Thousands of pounds more in mortgage repayments will result in many households facing a financial cliff next year.
"If you are having trouble paying your bills, talk to your lender about what assistance they might be able to offer.
"This could include a temporary pause in payments, extending the term of your mortgage to cut your monthly payments, or a temporary switch to interest-only payments.
"Banks and building societies should be ready and able to offer help."
The average interest rate on a new two-year fixed-rate 75 percent loan-to-value mortgage has risen from under two percent to six percent in recent years.
Home prices have begun to fall as cost of living pressures and higher mortgage rates ease.
In its twice-yearly Financial Stability Report (FSR), the bank said, "Pressures on household finances will increase during 2023.
"The cost of essential goods is expected to remain high, and about half of the mortgage lenders for owner-occupiers will see an increase in mortgage costs."
Prices fell 2.3 percent in November from the previous month, the biggest drop since 2008, as activity in the market begins to slow, according to lender Halifax.
Households, however, are spared from being pushed into negative equity by the pandemic rise in home prices.
Governor Andrew Bailey said at a press conference that the "economic environment is challenging," but stressed that households are better able to cope than they were during the 2008 "credit crisis".
He said, "We have high inflation, demand is slowing and interest rates have risen.
"Household and corporate finances are under greater strain.
"Overall, however, both households and businesses are more financially resilient than in previous periods of stress."
He also insisted that the financial system could cope with the additional stress, saying U.K. banks and building societies were prepared with strong balance sheets and high profits.
Threadneedle Street expressed concern about the non-banking sector and said it would conduct a stress test next year after some pension funds nearly collapsed when gilts prices fell.
The stark analysis came as official figures showed that real wages have fallen at the fastest rate in 13 years.
As the country is hit by a wave of strikes, official figures show total wages fell 3.9 percent annually in the quarter to October, when CPI inflation is taken into account.
That was the worst reading since the 2009 credit crisis.
Meanwhile, unemployment has risen to 3.7 percent and there are signs that struggling older people are returning to the labor market.
The share classified as "not in the labor force" decreased by 0.2 percentage points.
Job openings also fell slightly but remain at historically high levels, reflecting tightness in the labor market.
Chancellor Jeremy Hunt said the gloomy figures showed "difficult choices" were needed and warned that calling for huge pay rises would only "prolong the pain for everyone" by embedding inflation.
More needs to be done to prevent non-banks posing a risk to UK financial stability after gilt yields rose to historic rates in September, forcing the Bank to intervene, the BofE said.
Non-banks are defined as any financial institution that is not a bank, including pension funds and liability-driven mutual funds.
The Bank already stress tests the largest UK banks to monitor their resilience to deteriorating economic conditions.