Breaking News: Average two-year fixed mortgage rates reach 6%, marking the first increase in six months. According to financial information provider Moneyfacts, the average rate for a two-year fixed mortgage is now at 6.01%, up from 5.98% on Friday and 5.26% in May. This brings rates back to levels seen after last year’s mini-budget, which reached 14-year highs. It is the first time since December 2022 that these rates have reached 6% or higher. Longer-term fixed rates have also risen, with the average five-year fixed rate reaching 5.67%. These increases reflect market expectations of multiple interest rate hikes by the Bank of England this year, including a quarter-point increase to 4.75% on Thursday. Additionally, mortgage providers have been reducing their product offerings, with the number of available deals dropping from 4,923 to 4,683.
In other news, UK interest rate swaps suggest a greater than 50% chance of rates hitting 6% by February 2024, up from 4.5% currently. This calculation is based on the price of interest rate swaps, which are contracts used by investors to hedge against rising borrowing costs or speculate on future interest rate movements.
Sterling has risen to its highest level against the euro in 10 months as traders anticipate a rate hike by the Bank of England. The pound is trading at €1.1736, the highest level since August last year. The rise is attributed to expectations that both the Bank of England and the European Central Bank will continue raising borrowing costs, while the US Federal Reserve has paused its tightening cycle.
UK housebuilders’ shares have dropped to a three-month low following a report by Rightmove showing a slight dip in asking prices for homes in June. This suggests that the summer slowdown in the housing market has started earlier than usual this year.
The mayor of Bristol, Marvin Rees, warns of a “Wild West market” for renters in the city, calling for rent controls in the housing market. He highlights the need for intervention due to rapidly rising rents outpacing income growth. Rees states that rents in Bristol have increased by 52% over the past decade while wages only rose by 24%.
At the upcoming Bank of England policy meeting, there could be a split among policymakers regarding the decision to raise interest rates. James Lynch, Fixed Income investment manager at Aegon Asset Management, predicts a potential three-way split, with some members voting for unchanged rates, some voting for a 50-bps hike, and others in the middle voting for a 25-bps increase. MPC members Silvana Tenreyro and Swati Dhingra are expected to vote for no change, as they have opposed recent rate increases.
UK government short-term borrowing costs have reached a 15-year high, indicating further strain for mortgage holders. The yield on two-year government bonds hit 5%, the highest level since July 2008. These government bonds are used to price fixed-term mortgages and their increase is driven by market expectations of a rate hike by the Bank of England on Thursday.
Industry experts express concerns about rising mortgage rates. Riz Malik, founder and director at R3 Mortgages, warns of a “ticking time bomb” in the property market and calls for a cross-party Mortgage Task Force to address the issue. Samuel Mather-Holgate, independent financial advisor at Mather and Murray Financial, suggests changing the Bank of England’s mandate to put more weight on the future of the economy, allowing for a longer-term view on inflation targets and potentially avoiding further rate hikes.
Buy-to-let mortgage rates have also risen, with the average two-year fixed rate increasing from 6.21% to 6.30%, and the average five-year fixed rate rising from 6.17% to 6.23%. The number of available buy-to-let mortgage products has decreased from 2,589 to 2,515.
The Labour party does not offer specific plans to address mortgage payments. Instead, they propose tightening the windfall tax on oil and gas companies to generate more funds to reduce energy bills, indirectly assisting homeowners with their expenses. Leader Sir Keir Starmer blames the “terrible mini-budget” for worsening the situation and creating a “Tory premium on people’s mortgages.”
In response to the Prime Minister ruling out assistance for struggling mortgage payers, Labour…
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