Millions of mortgage holders are set to see their payments rise, according to the Bank of England, as they roll off of lower-rate deals onto the more expensive ones now available.
Homeowners can expect to see their mortgage costs increase by an average of £107 a month as their current deals end.
Mortgage rates have fallen in recent months, with major lenders like Halifax, HSBC and Barclays cutting deals in the last few weeks. But for homeowners on longer-term fixed rate mortgage deals, rates will still be higher when they come to remortgage.
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The Bank of England has calculated 3.6 million mortgages are due to be renegotiated during the next three years, amounting to 41% of all outstanding home loans.
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The findings, included in the Bank’s latest Financial Stability Report, are better than previously expected for homeowners. The number of mortgages facing expiry is lower than the Bank had initially forecast, and the monthly increase to mortgage payments is less than the £146 it expected.
There have been four interest rate cuts since last August, and these are slowly feeding into lower mortgage payments, as even though mortgage rates are falling many people have already remortgaged onto higher rates.
Around 2.5 million households, or 28% of mortgage holders, will see their bills fall in the next three years, according to the Bank’s calculations.
Higher loan-to-income mortgages
Elsewhere in the Financial Stability Report, the Bank gave home buyers a boost by saying mortgage lenders could lend to more people at higher loan-to-income ratios.
At present just under 10% of new mortgages issued were above 4.5 times a borrower's income. The Bank has said it would be content for that percentage to increase.
It has recommended allowing individual banks and building societies to issue more than 15% of their new mortgages at higher than 4.5 times loan-to-income.
But industry-wide, the Bank still wants to make sure the amount of lending above 4.5 times incomes stays below 15%.
Nationwide, one of the country's biggest lenders, welcomed the move. "It will help people who struggle to get on the property ladder because high rents and living costs have made saving for a deposit and meeting mortgage affordability tests extremely challenging," said Dame Debbie Crosbie, Nationwide's chief executive.
The Bank of England's recommendation comes after a call by the UK government for regulators to look for ways to encourage economic growth.
Up to 36,000 new higher loan-to-income mortgages a year could be accepted as a result of the change, by the Bank’s calculations.
End of the Bank of Mum and Dad?
The move could come just in time for some homebuyers, as the Bank of Mum and Dad looks like it is being wound up as they enter retirement and start to live on a pension.
Almost half (49%) of people want to be able to support family members financially in retirement – but only 28% think it’s a realistic aim, according to a recent survey by wealth firm Hargreaves Lansdown.
Those aged 55 and over are less likely to want to help their family (44%) and less likely to think it’s realistic (22%).
Only 30% of people don’t think they’ll be able to help, and don’t want to, but this rises to 36% of those aged 55 and over.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The Bank of Mum and Dad could be forced to close in retirement.
“Unfortunately, when we’re on a lower income after finishing work, it becomes much harder to help out financially. It means we need to consider how we can support our family at various stages in life, and when – if ever – the Bank of Mum and Dad can shut up shop.”
