Homeowners have been thrown at least a modicum of moderately positive news this week, as forecasts now predict that interest rates will peak slightly lower than previously expected. Data from Bloomberg suggests that the Bank of England base rate will hover at around 4.8% to 4.9% between March and September next year, which is significantly lower than the pick predicted at the time of Kwasi Kwarteng’s disastrous mini budget a few weeks ago.
This may come as welcome news to some homeowners, but many mortgage payers are still likely to feel the sting of significantly elevated rates. According to a separate study carried out by Morgan Stanley, around 35% of 40% of introductory mortgage deals are set to expire within the next 12 months. This will leave those exiting low introductory rates facing the prospect of interest rates up to three times higher than they are currently paying.
Adding to the economic woes of households hit by higher mortgage rates will be the withdrawal of the energy price guarantee next April. The average household energy bill is currently capped at £2,500 per year, but the initial plan to extend this scheme for two years was recently scrapped, reducing its run to just one year.
Without additional support, this will leave millions of households facing the prospect of even higher energy bills than those that have blighted much of the country throughout 2022.
A 300% leap for many mortgage payers
According to Morgan Stanley, the vast majority of households on fixed-rate introductory deals that are set to expire within the next six months will find themselves moving from a low 2% interest rate to around 6%. This will leave millions facing exponentially higher monthly mortgage bills, of which many may not be able to meet their payment requirements at all.
Speaking on behalf of Brewin Dolphin, a wealth management company, Rob Bargeman said that the appointment of Jeremy Hunt as Chancellor had at least calmed some fears among traders and market watchers.
“Essentially, spending more money and cutting taxes left international investors, who the government relies upon to fund our budget deficit, worried about the sustainability of the UK’s finances,” he said.
“As a consequence, investors demand a higher price and a greater interest rate to compensate them for the higher risk.”
65% of high-LTV mortgage products were withdrawn
Analysts now believe that interest rate rises throughout the first three quarters of 2023 will not be quite as steep as once predicted. As it stands, the current rate payable on a two-year fixed mortgage (following any introductory rate offers) is around 6.55%.
As lenders become increasingly reluctant to hand out high LTV mortgages in the current financial landscape, data from Moneyfacts suggests that around 65% of all mortgage deals with a 5% deposit requirement have been withdrawn.
This is likely to make it much more difficult for prospective homebuyers with low incomes to come up with the kinds of deposits needed to qualify for the mortgage products still available from mainstream lenders.
“First-time buyers are some of the lowest income-earners in the UK, and when house prices are up to 10 times the national average of wages in some areas, it has proven extremely difficult to obtain a mortgage,” said James Miles, of The Mortgage Quarter.
“The good news is that lenders are still lending and there are enough loans, but we are seeing mortgages being taken over a longer term to ensure payments are affordable for first-time buyers.”
“I would expect this to continue until the UK can get inflation under control, which will then have a knock-on effect of rates coming back down.”