Mortgage payments are set to increase by up to £3,000 a year for around four million homeowners next year, the Bank of England has said in a report.

Its Financial Stability Report warned that economic conditions had worsened and said the risk of households defaulting on debt has risen.

People with a fixed-rate home loan due to expire at the end of 2023 are facing an increase in their average monthly repayments of around £250 because they will have to refinance onto a higher rate. The report said this could mean that costs surge by £3,000 a year for many households who are already seeing their finances stretched by increased living costs.

The BoE predicted that 2.4% of households would find themselves with mortgage payments that they would find hard to afford.

“The risk that indebted households will default on loans, or sharply reduce their spending, has increased,” the report said.

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