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Brits Face Major Mortgage Crisis as Lending Rates Skyrocket

Experts have issued a warning about an impending mortgage crisis in the United Kingdom, which could have severe repercussions for the economy. Rising mortgage costs and a dwindling number of available products are placing immense pressure on borrowers as they approach deal renewals.

According to the latest financial information company Moneyfacts data, the average interest rate for a two-year fixed-rate mortgage on a residential property in Britain has surged from 5.98% to 6.01%. This increase marks the highest level since December 1, exacerbating concerns among homeowners.

This surge in mortgage rates can be traced back to the government’s market-disrupting mini-budget in late 2022. Moneyfacts reveals that two-year fixed rates have not exceeded 6% since November 2008. In addition to the rising rates, the number of residential mortgage products available has experienced a significant decline, plummeting from 5,264 on May 1 to 4,683.

Martin Stewart, the director of the mortgage advisory London Money, likened the current situation to the financial crisis, albeit with different causes, describing the past nine months as “seismic” for the mortgage and housing sector. Stewart further expressed concerns about the market’s dysfunctionality, citing instances where mortgage advisors are queuing alongside 2,000 others, all competing for products that may no longer be available when their turn arrives. Comparing the present scenario to the past, Stewart noted that mortgage rates have skyrocketed. Two years ago, most rates began with a “1” or even lower, while today, they invariably start with a “5.”

Moneyfacts data reveals that the average rate for a five-year mortgage presently stands at 5.67%. However, when questioned about support for struggling households, Prime Minister Rishi Sunak emphasized the government’s priority of reducing inflation and maintaining their current plan.

The mortgage crisis coincides with the surge in short-term UK government bond yields, with the 2-year yield reaching a 15-year high. Market expectations indicate that interest rates could peak at nearly 6%, surpassing the current rate of 4.5%. The recent robust labor market report has heightened these rate expectations, and the Bank of England is set to announce its latest interest rate decision on Thursday, following its 12th consecutive hike in May.

In the context of global economies, UK inflation remains alarmingly high at 8.7%. Central bank officials have expressed concerns about potential second-round effects, such as increased price setting and wages, which could contribute to prolonged elevated inflation.


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