The pain just keeps on piling up for the nation’s homeowners. According to Moneyfacts the average five-year fixed mortgage rate has gone up to 6.01%. They now stand at their highest level since last November with the average two-year fixed deal at 6.47%, up from 6.42%.
Higher and higher?
The news comes amid fears that fixed rate deals could soar even further to 7%.
Already, punishing rate hikes means that homeowners will be saddled with an additional £9 billion in interest payments between 2023 and 2024, according to the Centre for Economics and Business Research. Meanwhile some 2.5 million homeowners will face the ending of their fixed-rate deals, with a further one million on variable-rate deals over 2023 and 2024.
The stark economic outlook has driven more homeowners to turn to variable rate deals, with 13% of new mortgages taken out in the last quarter being variable rate deals, according to UK Finance. Homeowners are now betting on the likelihood of mortgage rates falling in the long-term.
Mortgage deals have become scarcer as well as more expensive: alongside mortgage rate hikes, almost 10% of mortgage deals have been withdrawn from the market by lenders taking fright at climbing rates.
David Hannah, chairman of Cornerstone Group International, said it was important for home buyers to think carefully about the affordability of mortgages over the long term.
Hannah said: “In the ever-evolving landscape of the UK property market, one of the most prominent obstacles facing homeowners is surging mortgage rates. The data from Moneyfacts showing that 5-year mortgage rates have breached the 6% mark will not be welcome to people searching for a mortgage.”
He added: “This has turned more home buyers to variable rate mortgages, as they are taking a chance that mortgage rates will fall in the long-term. It is essential to thoroughly assess the long-term affordability and viability of mortgage options, considering the potential impact on household budgets and future financial plans.”
No end in sight
The problem is that there is no indication of any end in sight to the mortgage misery. The UK economy remains bedevilled by inflation. The OECD reported that the UK is alone among the G7 nations, to be stuck with inflation on a continued upward trajectory.
“Inflation declined in all G7 countries, apart from the United Kingdom, where inflation edged up, as core inflation continued to rise,” the OECD said.
While inflation dipped in other G7 countries from 5.4% to 4.6%, in May it crept up in the UK from 7.8% to 7.9%
This spells more gloom for homeowners as the principal tool the Bank of England uses to calm down an economy overheating through inflation is interest rate rises, which then feed through to mortgage rate rises.
Chancellor Jeremy Hunt recently reiterated that bearing down on inflation was the government’s number one priority.
Hunt said: “In the end there is no alternative to bringing down inflation, if we want to see consumers spending, if we want to see businesses investing, if we want to see long-term growth and prosperity.”
The message is clear: tighten your belts because the financial pain looks set to continue for some time to come.
