The U.K.’s housing market entered another perilous week with higher mortgage costs and the potential for additional interest rate hikes from the nation’s central bank.
According to combined media reports, the financial data provider Moneyfacts reported the average 2-year fixed residential mortgage rate is now 6.23%, up from 6.19% on Friday and the highest level since last November. The average 5-year fixed residential mortgage rate saw an uptick to 5.86% from 5.83% on Friday, also a seven-month high.
The higher rates came in the wake of the Bank of England’s decision to hike interest rates last Thursday from 4.5% to a 15-year high of 5%, a move that caught many economists by surprise. Two additional rate hikes are being predicted for the summer.
The National Institute of Economic and Social Research, an independent think tank, is warning that the latest interest rate hike could result in 1.2 million U.K. households – 4% of households nationwide – depleting their savings by the end of the year because of higher mortgage repayments. Unlike the U.S., U.K. mortgage holders renew their home loans every few years.
“The rise in interest rates to 5% will push millions of households with mortgages towards the brink of insolvency,” said Max Mosley, an economist at NIESR. “No lender would expect a household to withstand a shock of this magnitude, so the government shouldn’t either.”
The opposition Labour Party released an analysis that showed U.K. homeowners paid much more for their mortgages than their European counterparts. Using a £200,000 mortgage paid back over 25 years as an example, the data analysis determined annual U.K. mortgage payments were roughly £1,100 higher than payments made in Belgium and Ireland and about £800 more than in Germany and the Netherlands. Labour intends to make the mortgage market a central issue in the 2024 election.
“Unlike this government, Labour will not stand by as millions face a mortgage catastrophe made by the Tories in Downing Street,” said Rachel Reeves, shadow finance minister for the opposition party.
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