New data released by data company Moneyfacts has revealed that this week the key mortgage rate in the UK rose to the highest level seen in fifteen years, beating the levels the rate hit in the wake of the disastrous September “mini-budget” crisis.
On Tuesday, the average two-year, fixed, residential mortgage rate rose to 6.66%, just barely beating the 6.65% which it hit last October. British mortgage prices are now their most expensive since August of 2008, during the global financial crisis, when the rates hit 6.94%.
As mortgage rates have soared due to the Bank of England implementing a series of interest rate hikes in an effort to constrain a soaring inflation, the housing market in Britain has slowed, as demand has plummeted.
Worries that inflation would prove difficult to control, with it coming in at 8.7% in May, have driven up the costs of funding, as fixed mortgage rates have steadily risen in recent weeks.
In addition to the pressures being applied to the nation’s sputtering housing market, the rate surge may yet prove catastrophic to homeowners who are already cash-strapped due to the soaring inflation and a crippling cost of living crisis.
In an interview with Reuters, Andrew Asaam, homes director at Lloyds Banking Group said, “Undoubtedly, households and customers are feeling the effect of not just mortgage rates increasing but the wider cost-of-living crisis.”
In addition, a recent study by the National Institute of Economic and Social Research revealed that the most recent Bank of England rate hike of 50 basis points to 5% may lead to 1.2 million British households, roughly 4% of all households nationwide, seeing their savings entirely wiped out by the end of the year due to higher repayment costs on their mortgages.
According to Matthew Ryan, head of market strategy at global financial services firm Ebury, “We suspect that higher mortgage rates will contribute to weaker economic activity in early-2024, and we are now not ruling out a technical recession in the first half of next year.”
He said that so far it appeared the markets were pricing in a peak UK interest rate of roughly 6.35% in the first quarter of next year.
