A key mortgage rate in the UK surged to its highest level in fifteen years this week, exceeding the rate reached in the aftermath of a September “mini-budget” crisis, according to figures from data provider Moneyfacts.
The average two-year fixed residential mortgage rate jumped to 6.66% on Tuesday, narrowly exceeding the 6.65% touched last October. Mortgage costs in Britain are now at their highest since August 2008 during the financial crisis, when rates stood at 6.94%.
The British housing market has slowed as soaring mortgage rates, driven by a series of interest-rate hikes by the Bank of England to curb inflation, have sent demand plummeting.
Concerns about stickier-than-expected consumer-price growth, which held at 8.7% in May, have led to a significant increase in the cost of funding, with fixed mortgage deal rates climbing in recent weeks.
On top of the strains on the country’s ailing housing market, the rate surge is sparking fears of a catastrophe for cash-strapped homeowners.
“Undoubtedly, households and customers are feeling the effect of not just mortgage rates increasing but the wider cost-of-living crisis,” Andrew Asaam, homes director at Lloyds Banking Group was quoted by Reuters as saying.
The BoE’s latest rate hike of 0.5 percentage points to 5% would see 1.2 million British households, equivalent to 4% nationwide, run out of savings by the end of the year because of higher mortgage repayments, a study by the National Institute of Economic and Social Research showed.
“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,” Matthew Ryan, head of market strategy at global financial services firm Ebury, said.
He added that financial markets were pricing in a peak in UK interest rates of around 6.35% in the first quarter of 2024.
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