Industry experts want government to intervene
The average rate for a two-year fixed mortgage broke the 6% mark on Monday – the highest it has been since December last year, according to financial information company Moneyfacts.
With the average two-year deal reaching 6.01%, mortgage customers will pay an extra £81 per month for the initial term – an estimate based on a borrowed sum of £200,000 over 25 years.
Moneyfacts also reported that the average five-year fixed rate is also on the rise but, at 5.67%, is still unusually cheaper than the average two-year deal.
The average two year fixed mortgage is now above 6%. How will this affect your mortgage? Read more: https://t.co/UiV2lEbpO5#Mortgages #FixedRates #RateRises pic.twitter.com/wKUMk6VslM
— Moneyfactscompare (@Moneyfacts_couk) June 19, 2023
Independent think tank Resolution Foundation has also predicted that the average two-year fixed rate deal will hit 6.25% later this year, leaving homeowners looking to remortgage paying an average of £2,900 more from 2024, with 800,000 homeowners set to be affected.
The last time average two-year fixed rate mortgages breached the 6% threshold was in the wake of last year’s mini budget, when deals peaked at 6.65% in the first week of October, before finally dropping below 6% in December.
Rates started rising again after April’s inflation figures and were worse than expected. The increased possibility of another base rate hike by the Bank of England spooked the market, and lenders started withdrawing products to reprice mortgage rates.
According to Michael Gove, state secretary for levelling up, housing and communities, government help for borrowers struggling with their mortgage payments is being kept “under review.”
David Hannah, chairman at Cornerstone Group International, said the government needed to consider taking extra measures to aid homeowners who were struggling with their mortgage payments.
“Homeowners who are coming to the end of their fixed rate deals will be looking at refinancing with rates that are more than double what they were a couple of years ago,” Hannah explained. “If you’re finishing a deal with a rate of 1.5 to 2% and you’re going onto a rate above 5%, that’s going to have a big impact on your budget.
“Many homeowners will be unable to afford the extra interest and could even result in people losing their homes. This will also add further pressure to a rental market which has already registered record prices this year. I think the UK property market is currently on a cliff edge and the upcoming interest rates announcement is set to further exacerbate the situation.”
Riz Malik, founder and director at R3 Mortgages, however, said that those who expected the government to intervene and provide assistance would be greatly let down.
“It is clear that the government is shifting responsibility back to lenders, which is rather unjust, considering the challenges they currently face,” he commented. “Some lenders struggle to give us sufficient notice when withdrawing mortgage deals, often providing only a few hours’ notice.
“To prevent the issue from escalating, it is imperative to establish a mortgage task force to thoroughly examine all possible solutions given the severity of the current situation.”
Samuel Mather-Holgate, independent financial advisor at Mather and Murray Financial, said the quickest, easiest and most sensible thing the government could do was to stop the Bank of England from raising interest rates.
“It could maintain its independence, just change the bank’s mandate,” he pointed out. “If the central bank had to consider the economy, as well as inflation, then rates would be paused, or even lowered, as hikes aren’t doing the job of slowing inflation.”
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