The average two-year fixed residential mortgage rate in the UK has reached its highest level in fifteen years, surpassing the rate seen in the aftermath of a September crisis. According to data provider Moneyfacts, the rate surged to 6.66% on Tuesday, slightly exceeding the 6.65% reached in October of the previous year. These figures indicate that mortgage costs in the UK are now at their highest since August 2008, during the global financial crisis, when rates stood at 6.94%.
The housing market in Britain has been negatively impacted by the soaring mortgage rates, which have been driven by a series of interest-rate hikes by the Bank of England aimed at curbing inflation. As a result, demand for housing has plummeted, causing the housing market to slow down significantly.
The rising cost of funding, due to concerns about higher-than-expected consumer-price growth, has also contributed to the increase in mortgage rates. Fixed mortgage deal rates have been climbing in recent weeks, exacerbating the challenges faced by the already struggling housing market.
The surge in mortgage rates is raising concerns about the potential catastrophe that cash-strapped homeowners may face. Andrew Asaam, homes director at Lloyds Banking Group, acknowledged the impact of increasing mortgage rates and the wider cost-of-living crisis, stating that households and customers are undoubtedly feeling the effect.
A study conducted by the National Institute of Economic and Social Research revealed that the Bank of England’s latest rate hike of 0.5 percentage points to 5% could lead to 1.2 million British households, equivalent to 4% of the population, depleting their savings by the end of the year due to higher mortgage repayments.
Matthew Ryan, head of market strategy at global financial services firm Ebury, expressed concerns that the higher mortgage rates could contribute to weaker economic activity in early 2024. He even suggested the possibility of a technical recession in the first half of next year. Financial markets are currently pricing in a peak in UK interest rates of around 6.35% in the first quarter of 2024.
The current situation in the UK housing market and the increase in mortgage rates are causing worry among economists and experts. The potential impact on homeowners and the wider economy remains uncertain, but there are fears that the consequences could be significant.
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