UK Mortgage Rates Reach 15-Year High

The cost of mortgages in the United Kingdom has skyrocketed, reaching the highest level seen in 15 years. The rate for a two-year fixed deal has surpassed the peak observed in the aftermath of the mini-budget, standing at an average of 6.66%.

This figure has not been recorded since August 2008, during the global financial crisis. Lenders are grappling with inflation and uncertainty surrounding the Bank of England’s interest rate decisions, which has led to questions from Members of Parliament regarding the impact on customers.

Parliamentary Inquiry

Bank and building society executives, including representatives from Lloyds and Nationwide, appeared before the Treasury Select Committee to address concerns surrounding mortgage stress faced by borrowers. The hearing focused on lenders’ response to customers falling behind on repayments and the broader implications for the UK housing market.

Mortgage providers acknowledged that individuals entering into fixed-rate agreements at present rates could face an average increase of £350 per month in their repayments. However, the number of delinquent borrowers remains relatively low, partly due to the current low unemployment rate.

The Changing Remortgaging Landscape

The committee explored how mortgage holders are navigating the challenging landscape. Some individuals are choosing to overpay on their current deals or considering extending the term of their mortgage.

The consistent and sometimes steep rise in mortgage rates in recent weeks, coupled with the expectation of further increases, has created uncertainty. Market projections of prolonged high inflation and interest rates in the UK have impacted mortgage funding costs, resulting in lenders raising their rates.

A significant number of fixed-rate mortgages are set to expire between now and the end of 2024. Approximately 2.4 million mortgages fall into this category, according to data from Deedle Finance.

Increased demand for lower-rate deals has depleted the funds allocated by some providers for mortgage lending. On top of this, a divide has emerged, with a substantial portion of borrowers choosing to renew with their existing lenders, bypassing the need for additional affordability assessments.

Effects on Renters and Landlords

The recent surge in mortgage costs is expected to have a cascading effect on renters, who may face higher payments as landlords attempt to recoup the increased expense of their mortgages. To keep their profits high, landlords are pushing the cost of their mortgages onto renters, who will be forced to either pay up or move out.

Landlords who are unwilling to pass the burden onto their renters may decide to sell properties. This would lead to a potential reduction in available rental homes, as highlighted by the National Residential Landlords Association. The reduced amount of rental homes could mean that renters will just have to accept the higher rents.

Consequences of Missed Mortgage Payments

If a borrower falls behind on their payments by the equivalent of two or more months’ repayments, they are officially in arrears. In such cases, lenders are required to treat borrowers fairly and consider requests to alter payment terms, potentially offering lower repayments for a temporary period.

However, any arrangements made will be reflected on the borrower’s credit file, impacting their ability to be approved for future loans. Their lower credit score means they may be denied or only able to access high-interest loan products in the near future.

Political Response

Following discussions with Chancellor Jeremy Hunt, lenders have agreed to exercise flexibility and avoid swift repossessions for individuals experiencing payment difficulties. This could be because so many people are struggling, meaning it would be unfeasible to penalise all of them.

Meanwhile, the Labour Party plans to hold its own mortgage summit. Labour politicians are set to address the pressing concerns in the industry.

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