Lenders, brokers and property experts all warned that high mortgage rates could keep rising this year, after two-year fixed rates hit the highest level since 2008 today.
The average rate on a two-year fixed-rate mortgage rose to 6.66% today, overtaking the 6.65% that was hit last year in the wake of Kwasi Kwarteng’s catastrophic mini-Budget, when promises of unfunded tax cuts meant markets expected drastic interest rate hikes.
In a sign that even higher rates could be on the way, the number of products on the market fell by 300 in the space of a day, to the lowest since February. Top lenders such as Halifax, Nationwide and NatWest have all repeatedly pulled mortgages from the market this year in order to reprice them at higher rates.
Today, representatives from some of the UK’s top banks and building societies were pulled before MPs to answer questions about mortgages. They said the Bank of England’s base rate was likely to keep rising for the rest of the year, meaning little sign of a let-up for mortgage holders in the short term, but things could change looking further ahead.
“The market-implied view is that the base rate is to rise to 6.5% and then they might be reduced to about 4% over the next couple of years,” Henry Jordan, home commercial director at Nationwide, said.”So that would feel like it doesn’t mean a long period of high interest rates.
“But there is a lot of uncertainty around long-term rates.”
Charlotte Harrison, interim CEO for Home Financing at Skipton Building Society, said: “We expect rates to rise over the rest of the year, and then over the longer term to fall moderately. But we don’t think they’ll get back to what we saw around 2021 or 2022.”
Last year, mortgage rates peaked almost a full month after the peak in the yields of gilts, which are government debt to be repaid over a certain time scale. Gilt markets tend to closely reflect expectations for future interest rate rises.
So far this year, two-year and five-year gilt yields peaked just last week. Yields remain close to those highs, fuelling fears that they could climb even further.
Brokers also expect higher prices to last.
Jamie Lennox, director of Dimora Mortgages, said: “The real concern is each day the outlook worsens and there is no light at the end of the tunnel in sight.”
Justin Moy, managing director of EHF mortgages, said: “The interest rate train has no means of stopping at the moment, and inevitably we will see the usual activity of repricing products throughout the week.”
Meanwhile, Jonathan Rolande of property buying trade association the National Association of Property Buyers, said: “Homeowners on a variable rate or looking to re-mortgage will be faced with paying hundreds of pounds more each month, buyers will be able to afford less and will have to reduce their expectations. There will now be further pressure on prices which will fall more sharply because of it.
“For those hoping this may be a storm that passes quickly, there was another piece of news released today that shows that’s unlikely to happen. Wages have grown at record rates thanks to employee shortages and many asking for rises to help cover additional living costs caused by inflation.
“The irony is that this will in turn further fuel inflation, making further interest rate rises more and more likely. The beginning of the so-called ‘doom-loop’ where inflation triggers pay increases that trigger inflation, that trigger pay increases.”
However, Paragon Banking Group boss Nigel Terrington did offer some hope. He noted that producer price inflation is already lower, and so this could soon feed through to lower inflation for consumers, and therefore lower expected interest rates.
“When I look at some of the data, I look at the PPI data, which has fallen rapidly,” he said. “But the consumer price index is struggling to fall. But it usually does, it just lags. And that would play into the hope that the inflation figures will come down quite sharply from here.
“If that happens, and I think the market is quite skeptical, so if it does then I think the market will suddenly believe it might be overdoing these interest rate expectations.”
