Policymakers highlighted that 3m more were due to refinance by 2027. While roughly 1.4m borrowers refinancing over the next year would see an average increase of £150 on their monthly payments, this is down from £180 a month extra from three months ago.
High street lenders have slashed their borrowing costs sharply in the wake of the Bank’s decision to reduce rates in anticipation of up to two more rate cuts this year.
The Bank also sounded the alarm over rising bets by hedge funds against US Treasuries, which have hit a new high of more than $1 trillion in recent months, up from a previous peak of $875bn (£659bn).
Policymakers warned that a number of factors could trigger a sudden unwinding of these trades, which “had the potential to amplify the transmission of a future stress”.
“It was important for financial institutions to be prepared for such severe but plausible stresses,” the Bank said.
Policymakers added that the fragility of financial markets was laid bare by August’s massive share sell-off. The rout was triggered by weaker-than-expected US jobs data and banks unwinding a so-called “yen carry trade” as an era of cheap borrowing in Japan came to an end.
While this episode of volatility proved to be short-lived, the Bank said it highlighted “material” global vulnerabilities. It also showed there was a “disconnect” between current lofty share valuations and concerns about global growth, with investors remaining jittery about both positive and negative economic news.
“Markets therefore remained susceptible to a sharp correction, with investors sensitive to developments in what remained a challenging global risk environment,” the FPC said.
