Mortgage payments set to jump by £500 for one million households

Mortgage payments will rise by at least £500 a month for nearly one million households by the end of 2026, the Bank of England has said.

Households and firms have been under pressure as interest rates have risen in a bid to lower high inflation.

In a report, the Bank said mortgage holders “may struggle with repayments” on loans.

But it said lenders are strong enough to withstand a rise in customers defaulting on repayments.

The Bank has raised interest rates from 0.1% in December 2021 to 5% to curb rising prices.

The Chancellor of the Exchequer, Jeremy Hunt, said in June that the Bank has “no alternative” but to raise rates.The theory is that raising rates makes it more expensive for people to borrow and that they will have less money to spend. They buy fewer things which slows the rate of rising prices.Most mortgages taken out in recent years have been at a fixed rate of two or five years which means there is a lag in terms of when recent rate rises will hit households.About 4.5 million homes have had to pay more in mortgage repayments since late 2021, and higher rates will hit the vast majority of the rest by the end of 2026.