The consumer champion Martin Lewis has said the mortgage “ticking timebomb” he warned the UK government about last year has “exploded”.
Lewis said on Tuesday that if interest rates were going to be high over three or four years, people were going to have to readjust their finances.
The MoneySavingExpert.com founder said that in December he told a mortgage summit held by the chancellor, Jeremy Hunt, attended by the bosses of the UK’s biggest banks, that they needed to prepare for a scenario where interest rates soared.
“Waiting for it to happen would be too late,” he said. “Yet now, the timebomb has exploded, and we’re scrambling about what to do. I can’t see this government bringing in a mortgage rescue package, even if it wanted to do so.”
The whole point of putting up interest rates is to “remove money from the economy”, he told ITV’s Good Morning Britain. “You do that by giving people less disposable income. Putting interest rates up is having the desired effect by squeezing people on mortgages.”
Mortgage rates have soared in recent weeks as the Bank of England’s attempts to cut stubbornly high inflation have fed through into lending deals. City investors widely expect the central bank to announce its 13th consecutive rate increase on Thursday in response to persistently high inflation.
Threadneedle Street is expected to raise its key base rate by at least a quarter point from 4.5%, extending its most aggressive round of interest rate increases in decades since lifting it from 0.1% in December 2021.
On Monday, Rishi Sunak ruled out extra help for UK homeowners struggling to pay soaring mortgage costs. The government would “stick to the plan” to halve inflation in its attempts to tackle the cost of living crisis despite growing pressure on the Conservatives as households across the country face a rise in borrowing costs, he said.
Lewis’s comments came as new figures from the data firm Moneyfacts showed the average two-year fixed-rate residential mortgage rate on the market rose to 6.07% on Tuesday, from 6.01% on Monday.
The average five-year fixed-rate deal is now 5.72%. This is up from an average rate of 5.67% on Monday. The choice of residential mortgages has also decreased overnight to 4,641, down from 4,683 on Monday.
Lewis has argued that banks needed to make it easier for people to change the length of their mortgage term, take a payment holiday or switch to interest-only. “But the big problem for me is they haven’t made that easy,” he said.
The turmoil in the mortgage market was also having a big “knock-on effect for many renters”, who faced spending a record proportion of their disposable income on rent, Lewis added.
The average UK tenant spends more than 28% of their pay before tax on rent, according to the property portal Zoopla. It means people are spending more of their wages on rent than at any other time in the last 10 years.
Rent now typically accounts for 28.3% of income, compared with 27% on average for the past 10 years, according to figures shared with the BBC. Average rents for new lets have also risen, jumping 10.4% in a year.
The march of interest rates has also left would-be first-time buyers struggling to access mortgages as the number of products for borrowers with small deposits has fallen sharply in the past year. Last weekend, there were 199 products for would-be buyers looking to borrow up to 95% of the value of the property, down from 347 at the start of June 2022, according to Moneyfacts.
The average rate on a two-year fixed 95% loan-to-value mortgage jumped by more than three percentage points to 6.49% over the same period, while for five-year products it rose by more than two percentage points to 5.8%.
