Approximately three million UK households are set to face higher mortgage repayments over the next two years as high interest rates continue to take effect, according

to the Bank of England's latest financial stability report. The report highlights that around 400,000 homeowners could see their mortgage payments increase by more than 50%.

Interest rates have risen to 5.25%, the highest in nearly two decades, as part of efforts to curb inflation, which had reached a 40-year high but has since fallen to the Bank's 2% target.

Despite the rise in the base interest rate, over a third of mortgage holders (35%) are still paying rates below 3%, thanks to deals secured before the recent energy price shocks caused by the war in Ukraine. However, as these deals expire, households will have to switch to more expensive mortgage products.

Most mortgage holders have already adjusted to the higher rates since the cycle of increases began in late 2021. According to the report, a typical household moving off a fixed-rate mortgage before the end of 2026 will face an average monthly payment increase of around £180.

The financial policy committee, responsible for ensuring the stability of the UK financial system, stated that UK lenders remain well-positioned to support households and businesses, even if the economic situation worsens. While interest rates are expected to decrease in the coming months, with potential cuts forecasted for August, September, November, and December, consumers should not expect a return to the era of ultra-low interest rates.

Charlie Nunn, the chief executive of the UK's largest lender, told Sky News that the new normal for mortgage rates will likely be between 3.5% and 4.5%.