UK mortgage costs have jumped to fresh highs for the year as rising interest rates continue to wreak havoc on households and prospective homeowners.
(Bloomberg) — UK mortgage costs have jumped to fresh highs for the year as rising interest rates continue to wreak havoc on households and prospective homeowners.
The average five-year fixed-rate home loan rose to 6.01% on Tuesday, edging closer to the 14-year peak reached at the end of 2022, according to Moneyfacts Group Plc. The average two-year fixed-rate deal rose to 6.47% after breaching 6% for the first time since December last month.
The UK housing market is under pressure from a triple whammy of pricey borrowing, economic uncertainty and the worst cost-of-living crisis in a generation. Markets expect the Bank of England to bump interest rates up to 6% in a bid to tackle inflation, slamming the door on an era of cheap money that stoked demand for homes.
Lenders are hiking the cost of loans, pulling deals off the market and tightening borrowing criteria, making it harder for first-time buyers to get on the housing ladder and adding hundreds of pounds to the monthly mortgage bills of existing homeowners when their deals expire. That’s prompted Chancellor Jeremy Hunt to extract a promise from the largest banks to show forbearance to borrowers in difficulty, though the government has ruled out direct fiscal support.
Mortgage approvals — an indicator of future borrowing — rose slightly to 50,524 in May, but remained well below pre-pandemic levels. That suggests that rising rates are piling pressure on would-be buyers, with the effective interest rate on new mortgages climbing 10 basis points to 4.56% in May, according to the BOE.
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