A typical five-year fixed mortgage in the UK now carries an interest rate of over 6%, adding more pressure on borrowers looking to buy a home or nearing the end of their current deals. According to data from financial information firm Moneyfacts, the cost of a five-year mortgage rose to 6.01% on Tuesday, up from 5.97% on Monday, reaching the highest level since last November. This increase in mortgage rates follows the chaos caused by the mini-budget in the previous autumn, leading to lenders raising rates and withdrawing deals after the Bank of England raised interest rates to 5% in an effort to control inflation.
The Bank of England has now increased interest rates 13 times since December 2021, yet inflation remains high at 8.7% in May, far above the country’s target of 2%. This rapid rise in interest rates poses a challenge for borrowers whose mortgage deals are set to expire in the coming weeks and months, especially as many are currently enjoying rates below 2%. With the prospect of significant increases in mortgage payments, people are struggling to manage higher food and energy bills.
Consumer champion Martin Lewis recently described the situation as a “mortgage ticking timebomb” that has already exploded. Financial markets predict that UK interest rates will reach 6% by the end of the year and remain at that level until next summer.
In response to the crisis, major lenders such as NatWest, Lloyds, Santander, and Barclays convened a summit with Jeremy Hunt to discuss their actions. They agreed on a new “mortgage charter” that includes measures to assist consumers during this challenging period. These measures include a commitment not to repossess homes within 12 months of the first missed payment and allowing customers to seek advice without impacting their credit score. Struggling homeowners have the option to switch to an interest-only deal for six months or extend their mortgage term temporarily without undergoing an affordability check or affecting their credit score.
Although the mortgage market is experiencing significant challenges, there are options available to help borrowers navigate through this difficult period.
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