Mortgage rates: Is there more pain to come for households?
Here is a look at what is behind recent mortgage rate rises and what is predicted to happen next.
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.Mortgage rates have continued to climb, with Nationwide Building Society raising rates from Friday.
Here is a look at what is happening in the mortgage market and where rates could go from here:
– What has been happening in the mortgage market in recent weeks?
Rates have been on the increase and some lenders temporarily withdrew deals available through brokers, later putting them back on sale, to help manage the flow of applications.
– Why have mortgage rates been increasing?
Some variable rate mortgage deals directly track the Bank of England base rate and they automatically increase in line with the base rate. The rate has climbed 12 times in a row.
Borrowers can also end up on a standard variable rate (SVR) when their initial mortgage deal ends. The SVR is set by lenders individually but it can often roughly follow movements in the base rate.
The bulk of mortgaged UK homeowners tend to take out fixed-rate deals. Swap rates underpin the pricing of fixed-rate mortgages and these have been rising amid expectations around inflation, which has turned out to be more “sticky” than some had expected.
The Consumer Prices Index (CPI) measure of inflation rose by 8.7% in the 12 months to April 2023, according to Office for National Statistics (ONS) figures.
– Is there more mortgage pain to come?
Given that a large chunk of homeowners are sitting on fixed rates, many are yet to feel the impact of recent mortgage rate increases on their budgets. This will add to the squeeze that households are already feeling from a range of other bills, such as surging food costs.
Around 800,000 fixed-rate deals are due to end in the second half of this year, according to trade association UK Finance.
– What is next for mortgage rates?
No one can say for certain what will happen to mortgage rates in the future.
What we do know, however, is that the next Bank of England base rate decision is next week.
Experts are predicting that there will be a 13th base rate increase, with a potential 0.25 percentage point rate hike, taking the base rate to 4.75%.
Meanwhile, fixed-rate mortgages have already been on an upward march.
The average two-year fixed-rate residential mortgage on the market was sitting at just below 6% on Friday, according to financial information website Moneyfactscompare.co.uk.
– What help is available if I am struggling with my payments?
Speak to your lender as early as possible. They may be able to suggest various options to keep monthly payments more manageable, although some, such as extending the mortgage term, may mean paying more over the longer term, so any decision needs to be weighed up carefully.
If you are coming to the end of a mortgage, a broker could help with finding a deal that is right for you.
Sam Richardson, deputy editor of Which? Money, said: “Mortgage lenders are obliged to offer support to their customers, so those struggling to meet mortgage payments should speak to their lender about what help is available.
“Doing so will not affect your credit rating. Further support may come in the form of temporary break from payments, interest-only repayments or extending the term of the mortgage.
“If you’re entitled to benefits such as universal credit, you may be able to apply for the Government’s support for mortgage interest loan scheme.”