In its Financial Stability Report for December, the FPC said there was a lag with the effect of higher mortgage rates on mortgaged households. It said although rates had started to come down, they remained higher than in the recent past.
The FPC said 55 per cent, or around five million, mortgage accounts had repriced since rates started to rise in late 2021. By 2026, it added that the full impact of higher rates would be realised by five million households by 2026. People coming off a fixed rate between Q2 of 2023 and the end of 2026 will face a possible £240 increase in their monthly mortgage payments, or around 39 per cent.
The FPC said since its Financial Stability Report in July, household income had increased beyond expectations. Now a smaller proportion of households have a high cost of living adjusted debt-servicing ratio and the lower prediction for the base rate is expected to reduce how much the share will rise.
In Q3, 1.4 per cent of households had a high cost of living adjusted debt-servicing ratio, which was down from 1.8 per cent in Q1. This is projected to remain at 1.4 per cent or 400,000 households by the end of the year.
This is lower than the 2.3 per cent share the FPC forecast in its July report for the end of 2023 and the 2.5 per cent it expected by the end of 2024.
However, household finances are still stretched, the FPC added.
Managing mortgages
The FPC said 12 per cent of new mortgages had terms of 35 years or longer in Q3, which was up from five per cent in Q1. Further, 28 per cent of new owner-occupier loans were extended on terms longer than 30 years in Q3. Among those who remortgaged during the period, 11 per cent extended their existing term.
A small segment also moved to interest-only on a temporary basis.
The FPC said the take-up of support offered through the Mortgage Charter was low compared to the Covid payment holidays.
As part of Financial Stability Report, the FPC also found that the withdrawal of the affordability test recommendation (ATR) has resulted in a small increase in borrower access to the mortgage market, the central bank noted.
