How are households adjusting to rising mortgage costs?

The purpose of Bank Overground is to share our internal analysis. Each bite-sized post summarises a piece of analysis that supported a policy or operational decision.
Published on 15 December 2023
Our latest survey of British household finances shows that mortgagors are adjusting their behaviour to both actual and anticipated increases in mortgage payments. The latter suggests that the aggregate reduction in spending may materialise faster than the rise in mortgage costs.

In order to bring inflation back to target, the Monetary Policy Committee has raised Bank Rate to 5.25%. One way in which increases in Bank Rate affect the economy is through higher interest rates on mortgages, which raise the costs for mortgage holders and may reduce their spending on goods and services. We can explore how much mortgage costs are increasing and the impact on spending using household surveys.

The Bank of England conducts a biannual household survey with NMG Consulting to obtain data on households’ financial circumstances and their economic expectations. The most recent wave of this survey was conducted between 30 August and 19 September 2023.

In that wave, nearly 40% of mortgagors reported a rise in their mortgage rates in the last year. We asked these households how they have responded to this increase. This allows us to calculate how much they have reduced their spending in response, known as the marginal propensity to consume: the £ reduction in spending for every £1 increase in mortgage payments. Our findings suggest that for an increase in mortgage payments of £100 per month, which was the median reported increase, mortgagors cut monthly spending by £50 (Chart A).

In addition, we asked those yet to face a change in their mortgage rates by how much they expected their monthly repayments to increase, whether they have taken any action in anticipation of that over the past year, and what they plan to do in the coming year. From that, we find that households have already been adjusting their consumption in anticipation of a rise in mortgage repayments. For an expected £100 increase in monthly mortgage payments, mortgagors have on average cut monthly spending by £28 over the past year and are looking to expand this reduction to £37 per month in the next year (Chart A).

Chart A: Marginal propensities to consume in response to a mortgage shock (a)

In anticipation of mortgage repayments rising. households have already been adjusting their spending over the last 12 months with others expect to take action oner the next 12 months.


  • Sources: Bank of England/NMG Consulting survey and Bank calculations.
  • (a) Marginal propensities to consume are calculated by using respondents’ reported decrease (expected decrease) in monthly spending over the last 12 months (next 12 months) relative to their experienced or expected increase in monthly mortgage repayments.

These calculated anticipation effects are also mirrored in the qualitative survey responses. Nearly half of mortgagors have already taken action in expectation of higher mortgage payments over the past year, particularly by spending less or working longer hours, and the share of those doing so is set to increase in the coming year (Chart B).

Chart B: Actions taken by mortgagors in anticipation of higher mortgage rates (a)

Spending less and working longer hours are the two leading actions households have/will take over the last/next 12 months.


  • Sources: Bank of England/NMG Consulting survey and Bank calculations.
  • (a) Share of mortgagors reporting which actions they have taken (are planning to take) over the last 12 months (next 12 months) in anticipation of higher mortgage repayments.

We can also examine how these responses vary depending on how far in the future the current fixed term of the mortgage rate expires. Over the last 12 months, 55% of households with fixed-rate mortgages have acted in expectation of higher repayments if their fixed term expires in 2024, compared to 38% if it ends in 2027 or later. The pattern is similar among mortgagors expecting to take action over the coming year, with 67% planning to do so if their fixed rate ends in 2024 and 46% if it expires in 2027 or later.

Overall, our findings show that in addition to mortgagors responding to an increase in their mortgage costs by cutting back other spending, households who anticipate a change in mortgage payments due to their fixed term coming to an end are also taking action and reducing their spending in advance. This suggests that the aggregate reduction in spending in response to the rise in Bank Rate through this channel is faster than the speed of the increase in mortgage costs.


This post was prepared with the help of Nishat Anjum and Christoph Herler.

This analysis was presented to the Monetary Policy Committee during the November 2023 policy round.

We have published Bank of England/NMG household survey data from 2004 to 2023.

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