Additional Piece: The Impact of Rising Mortgage Rates on Homeowners and the Economy
Introduction:
The recent surge in mortgage rates in the UK has raised concerns among homeowners and the government. As two-year gilt yields passed the 5% mark for the first time in 15 years, the average cost of a two-year fixed-rate mortgage rose by more than 6%. This increase in mortgage rates is placing significant pressure on homeowners, who are already facing a cost-of-living crisis. In this article, we will explore the implications of rising mortgage rates on homeowners and the broader economy, as well as analyze the government’s response to this challenge.
Impact on Homeowners:
1. Increasing Mortgage Costs: The rise in mortgage rates means that homeowners will have to pay a higher interest rate on their loans. This leads to an increase in monthly mortgage payments, putting a strain on household budgets. Additionally, the rising rates make it harder for new buyers to enter the market, as affordability becomes a major concern.
2. Financial Stress and Uncertainty: Higher mortgage costs can cause financial stress for homeowners, especially those who are already struggling to make ends meet. The uncertainty surrounding future interest rate hikes adds to the anxiety, as homeowners are unsure of how much more their mortgage payments will increase.
3. Reduced Disposable Income: The increased mortgage payments leave homeowners with less disposable income to spend on other goods and services. This can have a negative impact on consumer spending, which is a key driver of economic growth.
4. Housing Market Slowdown: The surge in mortgage rates may lead to a slowdown in the housing market. As affordability becomes more challenging, potential buyers may postpone their plans to purchase a property, resulting in reduced demand. This slowdown can have a ripple effect on related industries, such as construction and home improvement.
Government’s Response:
1. Lack of Support: Despite the growing challenges faced by homeowners, the government, headed by Prime Minister Rishi Sunak, has shown reluctance in offering new support measures. Sunak’s focus on cutting inflation as a way to keep rates low has drawn criticism, as it fails to address the immediate financial strain faced by homeowners.
2. Impact on the Government’s Popularity: The government’s inaction on the rising mortgage rates can have implications for their popularity among the general public. With a cost-of-living crisis already affecting individuals and families across the country, the lack of support on mortgage payments can further damage the government’s reputation.
3. Potential Economic Consequences: The surge in mortgage rates and the resulting impact on consumer spending can have broader economic consequences. A slowdown in consumer spending can hamper economic growth and lead to job losses, affecting the overall stability of the economy.
Conclusion:
The rising mortgage rates in the UK are posing significant challenges for homeowners and the government. As mortgage costs continue to increase, homeowners face financial stress and reduced disposable income. The lack of support from the government exacerbates the situation, raising concerns about the impact on the economy. It is crucial for policymakers to address these challenges and implement measures that support homeowners and promote housing affordability. Failure to do so can have long-term repercussions for the housing market and the overall economic stability of the country.
Summary:
The cost of a two-year fixed-rate mortgage in the UK has risen by over 6% due to two-year gilt yields surpassing the 5% mark for the first time in 15 years. The increasing mortgage rates are causing pressure on homeowners and the government, who are already facing a cost-of-living crisis. The average cost of a two-year fixed-rate deal rose from 5.98% to 6.01%, while the cost of a five-year agreement went from 5.62% to 5.67%. The government, led by Rishi Sunak, has refused to provide new support to mortgage holders struggling with payments. This lack of support is causing financial stress for homeowners and affecting consumer spending, leading to potential economic consequences.
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The cost of a two-year fixed-rate mortgage in the UK rose more than 6% on Monday, as two-year gilt yields passed the 5% mark for the first time in 15 years, piling pressure on homeowners and the government to Rishi Sunak.
Mutual Costs have risen sharply over the past week, ahead of an expected interest rate hike by the Bank of England on Thursday.
According to data provider Moneyfacts, the average cost of a two-year fixed-rate deal rose from 5.98% on Friday to 6.01% on Monday morning. The cost of a five-year agreement went from 5.62% to 5.67%.
Indicating that mortgage rates could rise further, two-year gilt yields rose by 0.07 percentage point on Monday, exceeding 5% for the first time since 2008.
Such increases pose a growing challenge to Sunak’s government, which it is already facing a cost-of-living crisis and is lagging behind in the polls. But the prime minister on Monday refused to offer any new support to people struggling with mortgage payments.
“I know the anxiety people will have about mortgage rates, that’s why the first priority I set at the start of the year was to cut inflation in half because that’s the best and most important way to keep rates low.” costs and interest rates for people,” he told ITV Good morning Great Britain.
Jeremy Hunt, chancellor, also ruled out direct tax support for mortgage holders, warning it would boost lending, forcing inflation and interest rates to rise.
To date, Sunak’s pledge to halve inflation from double-digit rates late last year has been muddled by continued price hikes, with inflation at 8.7% for April. The BoE has acknowledged that its economic model has failed to predict the persistence of inflation.
Economists polled by Reuters expect UK core inflation, which excludes volatile food and energy prices, to remain elevated at an annualized rate of 6.8% in May.
In recent weeks, swap markets have sharply revised their estimates upwards for the rate at which they expect the BoE’s key interest rates to peak, to 5.80% early next year. This is about one percentage point higher than expected the last time the BoE met on 11 May.
Swap rates feed into lenders’ mortgage decisions, as they drive their pricing of fixed-rate deals.
Monday marks the first time since the market turmoil on Liz Truss’ September “mini” budget that the average cost of a two-year mortgage adjustment has exceeded 6%.
Mortgage rates are off their November highs but have risen sharply in recent weeks on concerns about persistent inflation and wage growth.
Simon Gammon, founder and managing partner of mortgage broker Knight Frank Finance, said the trend was “hugely unfortunate”.
He added: “Rates at this level will come as a shock to the approximately 1.4 million households facing mortgage lending this year.”
The number of available residential mortgage loans is also decreasing. 4,683 products were available on Monday, down from 4,923 on Friday.
Developers, banks and specialist lenders pulling mortgage contracts over the weekend or raising rates included the Co-operative Bank, Kensington Mortgages and the Nottingham, Progressive, Principality and Leeds building societies.
Santander, NatWest, Nationwide and HSBC all made similar moves last week.
Rates on buy-to-let mortgages have risen even faster than those on residential offerings, with the average two-year fixed rate rising from 6.21% on Friday to 6.3% on Monday, Moneyfacts said.
Homeowners with mortgage loans are more sensitive to rate hikes as they generally prefer interest-only loans. This means that their monthly payments increase more dramatically when interest rates rise.
Despite rising interest rate expectations, the pound fell 0.1% against the dollar to $1.2803.
https://www.ft.com/content/a059277c-a78b-4531-b6bb-d99912974f8c
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