Millions face major hikes in mortgage repayments by 2027, Bank of England warns

Meanwhile, between one million and 1.5 million people are set to see a second increase in rates, having already fixed to a higher price since interest rates started rising in the second half of 2021.

About 31 per cent of all mortgages, or 2.7 million people, are expected to refinance onto a rate of more than 3 per cent for the first time before the final quarter of 2027.

But the central bank stressed that UK lenders are still in a strong position to support households and businesses, even if the economic backdrop worsens.

The Bank’s latest Financial Stability Report showed that most households have already had an increase in their mortgage rates since borrowing costs began rising substantially.

After sharp rises in 2022 and 2023, interest rates started to fall from a 16-year-high of 5.25 per cent earlier this year, with the central bank voting twice to cut the base rate in recent months, bringing it down to 4.75 per cent.

About 37 per cent of households with mortgages have not yet fixed to a new rate since interest rates started rising in the second half of 2021.

A typical household rolling off a fixed-rate mortgage in the next two years is due to face a jump of around £146-a-month, the report said – down on the last projection of £180 in June.

About 27 per cent of mortgage holders, or 2.4 million people, are expected to see monthly payments decrease before the end of 2027, having already seen rates rise.

The central bank also said the overall risk environment for the economy and the financial sector has risen in the last six months after a swathe of new governments were elected across the globe.

The Bank said risks to the financial system from wars, trade tension and cyber attacks were on the rise, adding that growing geopolitical tensions pose a “significant” risk to banks and broader financial stability.

Officials wrote: “Following elections in many countries, a range of macroeconomic and financial policies may change under newly-elected governments.”

In a survey of finance firms like banks and asset managers, “the proportion of those citing geopolitical risks reached its highest level” recorded by the poll.

This comes amid an escalation of Russia’s war in Ukraine in recent weeks, the ongoing war in the Middle East and the potential worsening of US-China relations.

US President-elect Donald Trump also recently vowed to slap higher-than-expected import tariffs on goods from Canada, Mexico and China, heightening fears of trade wars globally.

Bank of England governor Andrew Bailey pointed to Mr Trump’s proposed trade tariffs as a factor adding to global economic “fragmentation”.

He said in a Friday press conference that it is “important… to wait for the administration to come into office and decide what its policies are going to be”.

But he added that risks “move on the basis of what is expected and we are seeing increased risk of global fragmentation.”

However, Mr Bailey said: “I don’t think it’s right to pin it on one particular event. We are watching and will continue to watch those risks very carefully.”