Higher living costs and interest rates “stretched” household finances in the third quarter of the year — and are set to further tighten in 2024 as rising mortgage repayments filter through the economy, says the Bank of England. 

Households with high living costs due to rising mortgages are expected to rise to around 1.6% by the end of 2024, “as higher interest rate costs are passed through to borrowers,” says the Bank’s Financial Policy Committee.  

This is less than half of the 3.4% mark that hit households during the global financial crisis in 2007, it points out in its latest financial stability report. 

Around 1.6 million mortgage deals are due to end and roll over onto new agreements by the end of 2024, according to UK Finance. 

The Financial Policy Committee points out that owner-occupier mortgage arrears – set at 2.5% or more of the outstanding loan balance — rose slightly in the third quarter, but at 1% of all mortgaged households “remained low in historical terms”. 

Buy-to-let mortgage arrears rose to 0.6% this year, “but from a low base and, on one measure, remained less than a third of their global financial crisis peak”. 

The committee adds that the share of new high loan-to-income lending has been cut back by almost half by lenders since the second quarter of last year, “as rising interest rates had tightened affordability constraints and thus reduced the amount that households could borrow”. 

In the third quarter of this year, the share of new mortgages with loan-to-income ratios of 4.5 times income or above stood at 5.5% of all home loans, compared with 10% in the second quarter of 2022. 

The committee adds that real incomes have grown by more than expected since its July report, although it is still lower than two years ago, which would to some degree help households prepare for greater cost burdens next year.