BoE mortgage alert that 800k will have problems with payments

Mortgage alert as 800k households struggle to make their payments: Bank of England issues stern warning amid sky-high interest rates

Nearly a million households may be unable to pay their mortgages next year, the Bank of England has warned.

The central bank estimated that some 800,000 families will struggle to meet their home loans in 2023, up from around 500,000 last year and the highest level since the run-up to the 2008 financial crisis.

The warning will ring alarm bells among the millions looking to buy a home. The average mortgage now has an interest rate of more than 6 percent, compared to 2.35 percent a year ago.

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This adds an extra £5,000 to annual interest payments for the average family with a two-year fixed mortgage of £200,000, according to the Moneyfacts website.

Lender Aldermore launched new mortgages yesterday, including a two-year fixed rate of 9.28 percent for a borrower with a 10 percent deposit.

And about 2 million households currently on fixed-rate offers will need to remortgage by 2024 when their offers expire.

In its report, the Bank’s Financial Policy Committee said the increase in interest rates means that 2.8 percent of households, or 800,000 people, will spend 70 percent of their income on housing debt and items essential in 2023.

At this point, households are more likely to fall behind on payments. Last year, 1.7 percent of households were in the same position.

In its report, the Bank committee said: “The continued rise in costs of living and interest rates will put further pressure on UK household finances in the coming months and make households more vulnerable to the crises”.

Borrowing costs have been rising since December, when the Bank began raising interest rates at an unprecedented pace to rein in the rising cost of living.

Rates now stand at 2.25 percent but, with inflation nearing a 40-year high of 9.9 percent, more hikes are expected.

The Bank, led by Governor Andrew Bailey, is believed to be able to raise rates by another 0.75 percentage point, or even 1 percentage point, at its next meeting in November. That could drive mortgage rates higher.

The chaos in the markets after Kwasi Kwarteng’s mini-budget on September 23 has made things worse for borrowers.

Government debt or “golden” prices plummeted as investors worried about the cost of Kwarteng’s tax cuts. This boosted the rate of financial instruments known as swaps, which are linked to gilts.

Mortgages are calculated by reference to the exchange rate, so their cost has also skyrocketed.

Andrew Wishart, real estate economist at Capital Economics, said: “We expect arrears to rise from 0.7 percent on mortgages now to 1.6 percent in 2024.”

Michael Hewson, an analyst at CMC Markets, said: “The risk is that higher rates could push house prices down and leave many mortgage holders with negative equity, echoing what happened in the 1990s.” 1990″.

Leeds Building Society said current mortgage rates are the least affordable since records began. Rising house prices and increasing household debt mean that families are spending a higher proportion of their income on mortgages than ever before.

Today’s average mortgage rates of 6.43 percent are equivalent to a rate of 25.7 percent in 1980, Leeds said.

What to do if you need a mortgage

Borrowers who need to find a mortgage because their current fixed-rate agreement is coming to an end, or because they have agreed to purchase a home, have been urged to act but not panic..

Banks and building societies continue to lend and mortgages are still being offered and applications accepted.

However, rates are changing rapidly and there is no guarantee that the deals will last and not be replaced by mortgages that charge higher rates.

This is the best Money Mortgage Rate Calculator powered by L&C that can show you offers that match the value of your mortgage and property

What if I need to re-mortgage?

Borrowers should shop around and talk to a mortgage broker and be prepared to act to secure a rate.

Anyone with a fixed-rate agreement ending within the next six to nine months should consider how much it would cost to remortgage now and consider closing a new agreement.

Most mortgage deals allow fees to be added to the loan and are then only charged when you withdraw. By doing this, borrowers can lock in a rate without paying expensive setup fees.

What if I am buying a house?

Those with agreed home purchases should also aim to lock in rates as soon as possible, so they know exactly what their monthly payments will be.

Homebuyers should be careful not to overstretch themselves and be prepared for the possibility of house prices falling from their current high levels, due to higher mortgage rates limiting people’s borrowing capacity.

How to Compare Mortgage Costs

The best way to compare mortgage costs and find the deal that’s right for you is to talk to a good broker.

You can use our best mortgage rate calculator to display offers that match your home value, mortgage size, term, and fixed rate needs.

Keep in mind, however, that rates can change quickly, so the advice is if you need a mortgage, compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you. .

> Consult the best fixed-rate mortgages that you could apply for