As a result of interest rate hikes, banks and building societies have increased the cost of mortgages with a two-year fixed term in the UK.
Moneyfacts, a data provider, reports that lenders have increased the cost of borrowing in response to rising interest rates, and the expectation of further tightening. The average rate for a fixed-term mortgage of two years reached 6.66 percent on Tuesday. This is the highest rate since 2008.
The two-year fixed rates mortgages peaked on October 20, last year at 6.65 percent, following the unfunded tax reductions in Liz Truss’s “mini” Budget. This was after intense market volatility was sparked by Liz Truss’s mini Budget.
This latest spike will put more pressure on thousands who are already struggling to pay their costs of living.
Moneyfacts’ Rachel Springall said that while consumers can still find competitive deals, they may pause home ownership plans or even abandon the idea of refinancing if they are concerned about affordability.
HSBC, TSB, and Lloyds Bank are among the lenders who increased rates on certain products on Monday. Barclays, NatWest and TSB informed intermediaries that they will be increasing the rates of some mortgages on Wednesday.
Mortgage lenders were questioned by MPs about consumer behavior following recent rate increases, mortgage affordability, availability and impact on house prices.
Andrew Asaam from Lloyds Banking Group’s Homes Director told the House of Commons Treasury Select Committee that the UK’s largest mortgage provider is “undoubtedly” a household. . . “We are feeling the effects not only of the rate increases but also of the cost of living crisis”.
He added that the consumer had been able so far to handle higher costs, because unemployment was low and arrears were below pre-Covid.
Henry Jordan, Nationwide’s home commercial director, who is the UK’s 2nd largest mortgage provider, told Reuters that customers taking out new mortgages would see an increase of £235 per month on average.
Halifax data shows that high mortgage rates are a major factor in the UK house price declines last month, which was at its fastest pace since 2011. Halifax data shows that the average house price fell by 2.6 percent in June, compared to the same month of 2022. This was double the drop in May.
The government announced last month a mortgage charter to help households who are struggling with the costs of repayments.
Lenders are required to wait for at least 12 months prior to repossessing homes from borrowers who are behind in payments. They also have to commit to allowing borrowers to temporarily extend their mortgage terms without impacting their credit rating.
Charlotte Harrison, interim Chief Executive for Home Financing at Skipton Building Society told the Treasury Select Committee that the uptake of these measures was “more driven by life circumstances than the rate climate”. She added that an increase in interest rates would likely lead to a “rise in the number of customers choosing these options”.
Investors predict that interest rates will rise to 6.5 percent by March next year, which is the highest since 1998.
The stubbornly high 8.7% inflation rate is fueling bets on a further increase in interest rates by the BoE. Two-thirds (or Reuters) of the economists surveyed predicted a half-point hike at the next central bank meeting, which will take place in August.
Andrew Bailey, the BoE governor, and Jeremy Hunt, UK chancellor, reiterated on Monday their call for wage restraint. They argued that pay increases , which reached a record-high in the three months leading up to May , were making it more difficult to lower inflation.