The financial strain on thousands of British homeowners is set to worsen as mortgage borrowing rates reach their highest levels since December, intensifying concerns within the housing market. Rising borrowing costs, economic uncertainty, and a severe cost-of-living crisis have created a challenging environment for homeowners. With inflation figures and an upcoming Bank of England policy decision in focus, the situation may lead to significant declines in house prices if inflation surpasses expectations, potentially prompting tighter monetary policy.
According to Moneyfacts Group Plc, the average two-year fixed-rate home loan surged to 6.01% on Monday, nearing the 14-year highs reached in late 2022. This sharp increase follows a similar trend in five-year fixed-rate deals, which breached 5.5% last week, reaching 5.67% now.
The UK housing market is experiencing a triple impact due to high borrowing costs, economic instability, and a significant rise in living expenses, resulting in a challenging situation. The full effects on mortgage-holders are yet to be experienced. Reuters underlined that according to the Bank of England, a significant number of fixed-rate mortgages, totaling 1.3 million, are set to mature before the end of 2023. Additionally, there are more mortgages that will come up for renewal in 2024 and the following years.
Furthermore, Bloomberg noted major lenders like HSBC Holdings and Banco Santander have temporarily pulled products from the market due to rising bond yields that have not been seen since 2008. In this context, the availability of residential mortgage deals is declining. On Monday, the FT reported the number of available products fell to 4,683, down from 4,923 on Friday. This reduction further restricts options for potential homebuyers and adds to the overall strain on the housing market.
All eyes are now on two key events this week that could shape the housing market’s future. First, the release of inflation figures on Wednesday, which, if higher than expected, may fuel speculation about the need for the Bank of England to tighten monetary policy even further. Second, the upcoming Bank of England policy decision on Thursday, which could have significant implications for the housing market. A series of interest rate hikes by the central bank would exacerbate the financial challenges faced by homeowners.