The Bank of England has warned that half of UK homeowners will see their mortgage payments rise over the next three years, putting extra financial pressure on 4.4 million households. This includes around 420,000 households facing £500-a-month increases. About 37% of borrowers have been shielded from interest rate rises so far by fixing their mortgages, but 31% are expected to refinance onto rates above 3% by the end of 2027.
The Bank’s financial stability report also noted that 50% of mortgage holders will see an increase in payments, with an average 22% rise adding £146 to typical bills. A recent quarter-point cut in interest rates to 4.75% aimed to ease the burden on households, yet concerns remain about poorer households and the global economic outlook.
In a first-ever stress test, the Bank found that the shadow banking sector, including hedge funds and pension funds, could face a £17bn asset sell-off in a market shock scenario, amplifying the shock. While some sectors showed increased resilience, the lack of regulation in shadow banking poses risks that could deteriorate over time.
Additionally, the Bank cautioned that higher trade barriers could impact global growth, fuel uncertainty about inflation, and disrupt cross-border capital flows, potentially causing financial market volatility. The return of Donald Trump to the White House, with its expected impact on global trade, could further exacerbate these challenges.
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