Sign up for the View from Westminster email for expert analysis straight to your inbox
Get our free View from Westminster email
Mortgage rates have passed the peak seen in the wake of Liz Truss’s disastrous so-called mini-budget last autumn.
As the Bank of England’s recent rate hikes push up the cost of borrowing, average two-year fixed-rate deals reached 6.66 per cent on Tuesday, according to figures from Moneyfacts.
On October 20 2022, amid the turmoil that followed Ms Truss and Kwasi Kwarteng’s budget, the average two-year fixed-rate mortgage hit a peak of 6.65 per cent. Mortgage rates now stand at a level not seen since August 2008 at the height of the financial crisis.
The latest increase will pile pressure on homeowners, with millions of mortgage deals to expire before the end of next year.
It came as average wages, excluding bonuses, rose by a record 7.3 per cent in the three months to May, compared with a year earlier. It was the same increase as during the previous three months and the joint highest since records began in 2001.
Recommended
- Mortgage rates could surpass mini-Budget peak to hit 15-year high, experts warn
- Fresh fears for house prices after fastest drop in 12 years
- Fears mortgage rates could hit 7 per cent as experts say rises are ‘out of control’
Chancellor Jeremy Hunt used a speech at Mansion House in the City of London on Monday night to call for employers to show wage restraint to help the fight against inflation.
He was joined by Bank of England governor Andrew Bailey, who said the current level of wage increases was “not consistent with the inflation target”.
As rising mortgage rates risk pushing homeowners into arrears, Mr Hunt recently held a summit with mortgage lenders and a new mortgage charter was agreed to support those who are struggling.
Lenders will be able to offer borrowers a switch to interest-only payments for six months, and an extension to their mortgage term to reduce their monthly payments, with the option to switch back within six months.
After two-year deals surpassed the level reached during her premiership, Ms Truss was keen to point out that households would have been “better placed” to deal with higher mortgage rates under her policies.
A source close to the former prime minister told The Independent it was “clear” interest rates would have to be raised from the lows seen in recent years.
Last month, the base rate was hiked by 0.5 percentage points to 5 per cent to bring inflation under control, leaving homebuyers struggling to meet rising loan repayments. In December 2021, the base rate was just 0.25 per cent.
Tuesday’s wage growth figures are likely to pile pressure on the Bank of England to continue with a series of interest rate increases. It had been expected to push up the base rate at a meeting next month, with the figures making a hike, as well as future increases, more likely.
The source close to Ms Truss said: “One of the reasons Liz was pursuing a pro-growth agenda was precisely so that households and government would be better placed to deal with the consequences.
“Sadly we now find ourselves in a situation with higher interest rates and stagnant growth, but with none of Liz's reforms being enacted that would have given the economy a much-needed shot in the arm.”
Riz Malik, director of Southend-on-Sea-based independent mortgage broker R3 Mortgages, said Tuesday’s wage data meant further interest rate hikes were almost certain – meaning mortgage rates have further to climb.
“Rates are going to keep rising until it comes to a point where it is no longer manageable and the government will have to intervene,” he said.
Recommended
- Buying or selling? How to steer a path through the rocky housing market
- Biden to meet Zelensky as palace reacts to King Charles royal protocol breach
- EU faces cliffhanger vote on major bill protecting nature and fighting climate change
He added: “I would have thought they would have had to intervene now, but it seems ministers are determined to leave it to the markets.”
More follows…
✕
Subscribe to Independent Premium to bookmark this article
Want to bookmark your favourite articles and stories to read or reference later? Start your Independent Premium subscription today.
SubscribeAlready subscribed? Log in
Popular videos
{{/link}}