UK MORTGAGE RATES HIT HIGHEST LEVEL SINCE 2008

Wed 12 July 2023:

The average two-year fixed mortgage rate in the United Kingdom (UK) increased to 6.66 percent on Tuesday, reaching its highest point since August 2008, data provider Moneyfacts said.

The recent rise in mortgage rates was due to volatile swap rates, Moneyfacts added. “Much of this is driven by recent inflation figures, which remain stubbornly high and suggest the Bank of England (BoE) may need to make further base rate increases.”

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UK inflation rose by 8.7 percent in May, unchanged from April. To combat high inflation, the BoE raised its benchmark interest rate to 5 percent in June. It was the 13th consecutive rate hike since December 2021.

BoE Governor Andrew Bailey said on Monday in London that price inflation has been stickier than previously expected.

“It is crucial that we see the job through, meet our mandate to return inflation to its 2 percent target, and provide the environment of price stability in which the UK economy can thrive,” Bailey said.

For a 200,000 British pound (258,000 U.S. dollars) loan over 25 years, the monthly mortgage repayments on a 3 percent mortgage would amount to nearly 950 pounds, according to Moneyfacts. On Tuesday’s average two-year fixed rate, the same mortgage would cost 420 pounds more a month.

One in three Britons who own their home with a mortgage currently finds it difficult to afford mortgage payments, including 9 percent who find it “very difficult,” a YouGov survey found earlier this month.

When asked to look ahead, 47 percent think it will be hard to afford their mortgage payments in a year’s time, including 21 percent who expect it to be very difficult, the survey found.

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Higher mortgage repayments are more likely to hit higher income families, the think tank Resolution Foundation said. Three-quarters of the possible 15.8-billion-pound increase in mortgage repayments by 2026 will be borne by the richest 40 percent of households.

“This is going to add to the troubles that the government faces in having more discontents, and in this case, it’s going to be middle class discontents as opposed to the discontents it’s had to deal with in the past,” Professor Iain Begg at the London School of Economics and Political Science told Xinhua.

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The UK housing market has cooled amid higher interest rates. The average house price fell by 0.1 percent in June, a third consecutive monthly decline, according to mortgage lender Halifax.

“The resulting squeeze on affordability will inevitably act as a brake on demand, as buyers consider what they can realistically afford to offer,” Kim Kinnaird, director at Halifax Mortgages, said.

“While there’s always a lag effect when rates go up, many existing mortgage holders with variable deals or rolling off fixed rates will likely face an increase in the next year,” Kinnaird added.

SOURCE: Xinhua

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