UK Homeowners Struggle as Mortgage Costs Spike Above 6%: Rishi Sunak Rejects Extra Assistance
Rishi Sunak, the Chancellor of the Exchequer, has dismissed the possibility of providing additional aid to UK homeowners who are grappling with soaring mortgage rates. This comes as the average two-year fixed-rate loan has surpassed 6%. Despite mounting pressure on the Conservative Party due to the rising borrowing costs faced by households across the nation, the Prime Minister stands firm on his plan to halve inflation as a means of addressing the cost of living crisis.
The Bank of England’s efforts to combat stubbornly high inflation have led to a sharp increase in mortgage rates in recent weeks. City investors widely anticipate the central bank to announce its 13th consecutive rate hike this week, which will likely raise the key base rate by at least a quarter point from the current 4.5% level. If this occurs, it will continue the most aggressive round of interest rate increases in decades, since the rate was raised from 0.1% in December 2021.
Following suit, high street lenders, including TSB, have reacted to the possibility of higher Bank of England base rates by raising the cost of new home loans to the highest levels recorded since the 2008 financial crisis. On Monday, TSB withdrew their cheapest mortgage deals. The average rate on a two-year fixed-rate mortgage rose to 6.01% from 5.98%, while the average five-year deal increased to 5.67% from 5.62%.
Calls for government support have intensified as over 2.4 million fixed-rate deals are set to expire by the end of 2024, leaving homeowners facing a significant rate hike before the next election. However, Sunak remains committed to his strategy, emphasizing the importance of halving inflation to keep costs and interest rates low. In addition to the existing mortgage guarantee scheme for first-time buyers, he highlighted the support for mortgage interest scheme, which is designed to assist homeowners.
Currently, UK inflation stands at 8.7%, significantly higher than the Bank of England’s 2% target. Consumer advocate Martin Lewis warned the government last autumn about the impending threat of higher mortgage costs, referring to it as a “ticking timebomb.” Now that the timebomb has detonated, Lewis emphasizes the need for prompt action to address the situation.
While there were hopes that the Treasury would intervene to provide relief for homeowners, Cabinet Minister Michael Gove’s statement on Sunday indicated that help was under review. However, Sunak’s recent comments suggest that no additional assistance is planned. Keir Starmer, leader of the opposition Labour Party, has also refrained from making specific pledges of support for mortgage-holders if his party comes into power. Instead, Starmer mentioned tightening the windfall tax on oil and gas companies to generate more funds to mitigate energy bills.
On a separate note, Moneyfacts reported that the average two-year fixed rate on a buy-to-let mortgage increased from 6.21% to 6.30%. The number of buy-to-let mortgage products available has also decreased, dropping from 2,589 on Friday to 2,515 on Monday. Additionally, Rightmove revealed that rising mortgage rates have resulted in the early onset of the usual summer slowdown in the housing market. This has led to a decline in average asking prices for British homes in June, the first such drop in six years.
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