Mortgage payments ease but many still face ‘price shock’

Fewer households will struggle to keep up with mortgage payments than previously expected, the Bank of England has suggested.

Close to 500,000 households are predicted to spend more than 70% of their post-tax income on their mortgage by the end of next year, it said.

That’s down from 650,000 predicted in July.

But its analysis also shows the scale of the “payment shock” that some mortgage borrowers are facing.

According to the bank’s estimates, just under 900,000 will see mortgage payments jump by more than £500 a month due to higher interest rates.

Around 20% of that number are predicted to see a jump of more than £1,000 per month.

In the Bank’s latest Financial Stability Report published on Wednesday, it said that five million mortgage accounts had been re-priced since interest rates started to rise in December 2021.

It estimated five million more would see their mortgage payments rise by 2026.

There was some better news for mortgage holders though, with the bank downgrading its forecast of those predicted to struggle to pay back their loans.

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The Bank said households were opting to borrow over longer time periods to manage higher interest rates.

As many as 12% of new mortgages are now for terms of more than 35 years. The proportion of new loans extended for more than 30 years has reached 28%.

While that makes borrowing more affordable in the short term, it could increase the amount of debt borrowers have to repay over the longer term, meaning they are ultimately paying substantially more for their home.

Meanwhile, the picture has improved for some savers, according to the City regulator.

In an update on Wednesday, the Financial Conduct Authority (FCA) said that there were signs of more competitive interest rates for cash savers between July and October, and indications that some were shopping around for a better deal.

A number of easy-access savings products are now paying interest of 5% or more, it said.

However, some people who had not moved their money for years were still getting little back, it said.

“There are still low paying accounts out there, particularly products that are no longer on sale,” said Sheldon Mills, from the FCA.

“We want firms to keep prompting customers in lower paying accounts to move, and we encourage customers to shop around for the best savings deals.”

The FCA hauled bank bosses in for talks earlier in the summer, and MPs had criticised the biggest High Street banks for failing to pass on rising interest rates in full to their savings customers.

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