Brexit Fallout: UK Mortgage Rates Skyrocket to 15-Year High, Surpassing Truss-era Peak

“UK Housing Market Faces New Challenges as Mortgage Rates Reach 15-Year High Amidst Inflation Battle”
Brexit Fallout: UK Mortgage Rates Skyrocket to 15-Year High, Surpassing Truss-era Peak

Key British Mortgage Rate Hits 15-Year High Amidst Housing Market Slowdown

In a concerning development for the UK housing market, a key mortgage rate has reached its highest level in 15 years, surpassing levels seen during the aftermath of the “mini-budget” crisis in September. This surge in mortgage rates comes at a time when the Bank of England is grappling with stubborn inflation.

According to data provider Moneyfacts, the average two-year fixed residential mortgage rate has risen to 6.66%, narrowly exceeding the previous peak of 6.65% on October 20. This is the highest rate since August 2008, when it stood at 6.94%.

The housing market in Britain experienced a recovery in early 2023 after the turmoil caused by the unfunded tax-cutting plans of former Prime Minister Liz Truss. However, homeowners and buyers have recently faced renewed mortgage difficulties, with fixed mortgage rates increasing rapidly in recent weeks.

The rise in mortgage rates can be attributed to stickier-than-expected consumer price inflation, which remained at 8.7% in May. This has pushed up bond yields and led to increased market speculation on the Bank of England’s benchmark rate, which currently stands at 5% but is expected to rise to 6.5%.

Bank of England governor Andrew Bailey has acknowledged signs of more persistent underlying inflation pressures. Last month, the bank unexpectedly raised its bank rate to 5% in an attempt to control the highest inflation rate among major economies.

Another contributing factor to the surge in mortgage rates is the increase in swap rates, which lenders use to determine the cost of mortgage borrowing. Two-year swaps have seen a significant jump throughout June, prompting major mortgage lenders to repeatedly adjust their home loan offerings.

During a hearing with the Treasury Committee in the UK Parliament, lenders including Nationwide, Lloyds Bank, and Santander reported a slight increase in mortgage payment arrears. However, they emphasized that arrears remain below pre-pandemic levels and are low in a historical context.

It is important to note that most households have yet to experience the impact of higher borrowing costs, as they are still locked into previous mortgage deals. Typically, British homebuyers opt for fixed-rate mortgages for two or five years before refinancing or accepting a variable rate.

UK Finance, a trade body, estimates that 800,000 households will need to refinance their loans in the second half of this year, with a further 1.6 million expected to do so in 2024. This accounts for nearly seven million outstanding fixed-rate mortgages.

Analysis from the Resolution Foundation, a think tank, reveals that the average homeowner who refinances their mortgage in 2024 will face an additional annual cost of £2,900.

The impact of these rising mortgage rates is also evident in house prices. Mortgage lender Halifax reported a 2.6% annual decline in house prices in June, the largest drop since 2011. Nationwide reported a 3.5% year-on-year decrease last month, the biggest since 2009.

The combination of soaring mortgage rates and falling house prices paints a challenging picture for the UK housing market. As the Bank of England continues to battle inflation, homeowners and buyers will need to navigate the increasingly difficult landscape of mortgage borrowing.

In conclusion, the UK housing market is facing significant strains as a key mortgage rate reaches a 15-year high. The impact of rising mortgage rates, coupled with falling house prices, is a cause for concern. As the Bank of England grapples with inflation, homeowners and buyers must prepare for the challenges ahead.