Almost one million households face £500 a month mortgage hike, Bank of England warns

Nearly a million mortgage holders around the country will see their monthly repayments jump by £500 or more in the coming years, the Bank of England has warned.

The Bank said its models suggested a sharp leap in mortgage costs for many households across the country as the impact of higher interest rates feed through.

However, it said that despite this sharp increase in the mortgage burden, the share of total households with high mortgage burdens – in other words relative to their incomes – remains well below the 2008 peak.

And it said it would take another 3 percentage point increase in interest rates for that burden to exceed that peak.

Markets are currently expecting another percentage point and a half in rate increases.

The findings from the Bank’s Financial Stability Report underline the scale of pressure facing households as the bank raises interest rates in an effort to bring inflation under control.

The bank’s official interest rate is currently 5%, having been lifted far higher than most economists had expected at the beginning of the year.

The average rate on two-year fixed rate mortgages has now exceeded the 6.66% per cent peak it hit after the mini-budget.

The bank said that even so, the proportion of post-tax income spend on mortgages remained well below the peaks before the financial crisis, and said this was partly down to measures introduced to limit the amount households were borrowing.

It added that having stress tested UK banks for a far worse economic scenario than the one currently in play, it believed all banks were healthy enough to withstand the coming months.

However it warned that there remain some pockets of vulnerability, including buy to let landlords with interest only mortgages and parts of “market based finance”.

It indicated that the LDI crisis last year, where parts of the pension system came under pressure following the post mini budget rate spike, could be a sign of things to come.

“There continues to be an urgent need to increase resilience,” the report said.

“Many firms involved in market-based finance are not regulated by the Bank of England, so we are working with other regulatory authorities to achieve this.”