Following the decision by the Bank of England (BoE) to increase the base interest rate to 5%, major lenders including HSBC, Halifax and Nationwide have launched an additional round of mortgage rate hikes. The typical fixed-rate deal now has an interest rate of almost 6%.
According to the financial data firm Moneyfacts, average rates on two-year and five-year mortgages have climbed up to 6.37% and 5.94% respectively. This is already close to the ‘mini-budget’ highs experienced during the previous Prime Minister Liz Truss’ premiership, where the average rates were 6.65% and 6.51% respectively.
There are further concerns of a vicious cycle forming in the market, particularly with mortgages offered by high street banks. Many of them are themselves experiencing an increase in the cost of funding due to market conditions, which in turn is further passed onto borrowers. As the costs continue to increase, lenders are also forced to continue pricing their mortgage offerings higher.
These new rises come as the Prime Minister called on borrowers to ‘hold their nerve’ over rising interest rates, insisting that the BoE and the government were on track to lower inflation, a statement widely ridiculed by opposition parties.
A summit with major lenders resulted in new protections being introduced, such as a minimum time limit of one year being placed on lenders before they are able to repossess a home after a missed payment. Nonetheless, these protections remain limited and are only implemented on a voluntary basis – not all lenders have agreed to the new measures.
The hikes have had major repercussions across the property market. Many buy-to-let landlords have been forced to increase their rents, passing the increasing costs to their tenants. Despite the new measures, there are still concerns that many more homeowners will face repossession as their repayments become increasingly unaffordable.
The government advises all borrowers who are struggling with their mortgage repayments to contact their lenders to arrange extra support as soon as possible.