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According to data provider Moneyfacts, a major mortgage rate in the UK rose to its highest level in fifteen years this week, surpassing the rate attained in the aftermath of a September “mini-budget” crisis.
On Tuesday, the average two-year fixed residential mortgage rate rose to 6.66%, just above the 6.65% seen in October. Mortgage rates in the United Kingdom have now reached their highest level since August 2008, during the financial crisis, when they were at 6.94%.
The British home market has stagnated as high mortgage rates, caused by the Bank of England’s series of interest-rate hikes to combat inflation, have sent demand falling.
Concerns over slower-than-expected consumer price increases, which remained at 8.7% in May, have resulted in a major increase in funding costs, with fixed mortgage deal rates rising in recent weeks.
In addition to the strains on the country’s faltering housing market, the rate increase is raising fears of a financial disaster for cash-strapped homeowners.
“Undoubtedly, households and customers are feeling the impact of not only rising mortgage rates but also the wider cost-of-living crisis,” Andrew Asaam, housing director at Lloyds Banking Group, was quoted as saying by Reuters.
According to a National Institute of Economic and Social Research research, the Bank of England’s latest rate hike of 0.5 percentage points to 5% would force 1.2 million British households, or 4% of all households, to run out of savings by the end of the year due to higher mortgage repayments.
“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,” said Matthew Ryan, head of market strategy at global financial services business Ebury.
He also stated that financial markets expect UK interest rates to peak at roughly 6.35% in the first quarter of 2024.
