More than five million UK households are expected to face higher mortgage repayments when they refinance over the next two years, according to the Bank of England’s latest Financial Stability Report released in July 2026.
The Bank estimates that just over five million borrowers will see their monthly repayments rise by the end of 2028, an increase from its previous projection of nearly four million published in December. The revision reflects higher mortgage rates following increased market interest rates linked to the conflict in the Middle East.
Rising mortgage rates
The report notes that the average rate on a two-year fixed 90% loan-to-value mortgage has increased to 5.32%, approximately 75 basis points higher than at the time of the Bank’s December Financial Stability Report.
Around 750,000 households due to refinance by the end of this year after taking out mortgages before 2022 are expected to experience the largest increases in repayments. Many of these borrowers are coming to the end of fixed-rate mortgage deals secured when borrowing costs were below 3%.
The updated projections come as lenders continue to adjust mortgage pricing in response to changes in wholesale funding costs and market expectations for interest rates. The shift in borrowing costs could have implications for the wider property market, affecting both residential lettings and purchase activity.
Financial system resilience
Despite the increase in refinancing costs for many borrowers, the Bank said the UK financial system remains resilient overall. The Bank of England stated that higher market interest rates have increased the cost of new mortgage lending, resulting in more borrowers being exposed to higher repayments over the next two years.
The Financial Stability Report also highlighted potential risks to global financial markets. The Bank warned that increased borrowing by hedge funds to invest in artificial intelligence-related stocks has contributed to rising market valuations and could amplify risks if investor sentiment were to deteriorate.
“Rising equity prices have been driven, in part, by a narrow set of AI-related companies increasing market concentration in some global indices,” the Bank said. “There has been a significant rise in hedge fund leverage in equity markets, creating risks.”
Regulatory changes proposed
The Bank also outlined proposals to reduce some regulatory requirements for the UK’s largest lenders as part of a wider review of the financial system. Under the plans, systemically important banks would be allowed greater flexibility to use their capital buffers during periods of market stress before rebuilding them over time.
The Bank of England is consulting on changes to capital rules that could allow major lenders to hold slightly lower levels of capital against their lending, with the aim of increasing their capacity to support households and businesses. These changes could influence how financial institutions and brokerages operate in the mortgage market.
The proposals form part of broader efforts to simplify post-financial crisis regulation while maintaining the resilience of the UK banking system, according to the Bank. The regulatory adjustments are intended to balance financial stability with the need to support lending to the property sector and wider economy during periods of economic stress.
