Tomorrow, the Bank of England’s Monetary Policy Committee is expected to approve another rise in interest rates, which will be the 13th increase in the past 18 months. The Committee’s primary goal is to combat inflation, and it seems that interest rates will continue to rise if inflation remains an issue. However, this will have a significant impact on homeowners with mortgages, especially those coming to the end of their cheap fixed-rate deals. While some may argue that today’s borrowers have it easier compared to previous generations who experienced high interest rates in the 1970s and 1990s, the reality is that many homeowners are already stretching their finances to the limit. As interest rates rise, mortgage repayments will increase for those with variable rate loans, making it even more challenging for first-time buyers to enter the housing market. The prospect of higher interest rates, coupled with falling house prices and a lack of new borrowers, paints a concerning picture for the mortgage market. However, some experts believe that these measures are necessary to truly combat inflation, even if it means homeowners will face financial difficulties. The question remains: Is the mortgage pain worth it to control inflation, or should the government step in and establish a mortgage protection fund? The government has thus far declined this option. To put things into perspective, mortgage costs today are lower than they were in the 1970s and 1990s, but recent rate increases have made affordability a challenge for first-time buyers. Additionally, the ratio of house prices to average earnings is currently above the long-term average but lower than the peak it reached last year. Ultimately, the decision to increase interest rates and the impact it will have on the mortgage market raises important questions about balancing inflation control with the financial stability of homeowners.
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