More than seven million UK homeowners could be at risk of their mortgages being affected by rising interest rates, the Bank of England has warned.
In its Financial Stability Report, the Bank has said that people need to start paying off their debts to ensure that they can afford their mortgage repayments.
Should interest rates increase in 2023, as some analysts have predicted, homeowners will be paying more for their mortgage each month.
According to the report, many risk becoming “mortgage prisoners”, trapped in their current property and unable to move house because of elevated borrowing costs.
The Bank has warned today that approximately 7.2 million outstanding mortgages are based on variable rates.
“Currently, around two-thirds of outstanding mortgages in the UK have floating interest rates, somewhat above the average over the past five years,” it said in the report.
“That proportion is rising as mortgagors move on to standard variable-rate products as existing fixed-rate deals expire. This exposes more households to the risk of increases in interest rates,” the Bank added.
The report has also warned that an increase in rates could result in more property owners being unable to afford loan repayments.
“Given current levels of debt, UK banks might face higher defaults if interest rates were to rise rapidly from current levels or if income and employment were to fall,” it warns.
The Bank of England is currently under mounting pressure to raise its base rate of interest from its current, historically low level of 0.5 per cent, as inflation increases.
