Borrowers are bracing themselves for another blow as mortgage rates are expected to surge amidst ongoing market turbulence. Financial experts are warning that lenders are pulling back on deals and increasing rates at an alarming rate, with no signs of relief in sight.
Over the past month alone, mortgage rates have shot up by approximately 0.5 percentage points, with average fixed deals reaching a staggering 6%. This spike in rates comes at a time when 1.5 million households are set to transition from fixed deals to variable rates this year.
The upward trajectory of mortgage rates can be attributed to recent data revealing that UK inflation is not subsiding as quickly as initially anticipated. This has led to predictions that the Bank of England may raise interest rates to a level even higher than previously projected, potentially soaring from the current 4.5% to a daunting 5.5%.
The impact on lenders has been significant, resulting in a flurry of rate hikes and deal withdrawals in recent weeks. HSBC, one of the major lenders, temporarily halted new deals sold through brokers, but eventually reopened offers amidst the unprecedented demand.
David Hollingworth, an expert at broker London & Country, emphasized the relentless pace at which rates have been rising. He stressed the urgency for those considering fixed-rate mortgages, stating, “You can’t hang around if you are looking at a fixed rate.” Lenders are under pressure to adjust their pricing as the market undergoes fluctuations, leaving those with more affordable deals inundated with a “tidal wave” of potential business.
Hollingworth acknowledged that the upcoming week is likely to witness further rate increases. However, he expressed hope that rates would eventually stabilize, offering some respite in the near future.
According to financial data firm Moneyfacts, the average two-year fixed-rate mortgage deal currently stands at 5.86%, while a five-year deal has soared to 5.51%. In contrast, the figures were a mere 3.03% and 3.17% respectively last May. This dramatic rise in borrowing costs has left many households grappling with a significant financial burden.
When a fixed-term agreement expires, borrowers automatically revert to their lender’s standard variable rate (SVR). However, brokers caution that these SVRs have skyrocketed, meaning those who adopt a wait-and-see approach face a substantial spike in their interest rates and subsequently, higher monthly mortgage payments.
Ian Stuart, the head of HSBC UK, acknowledged the deep concerns felt by many customers during these trying times. He highlighted the impact of transitioning from an old rate, such as 1.5%, to a new rate as high as 5%, which poses a significant strain on monthly budgets.
HSBC temporarily suspended sales of new deals last week due to overwhelming demand, which Stuart described as “unprecedented.” Additionally, he predicted further interest rate hikes in the UK, adding more pressure to an already strained market.
While this news is far from what mortgagees were hoping for, it appears that inflation is not projected to decrease as rapidly as previously expected, compounding the challenges faced by borrowers in the current economic climate.