Major British lenders announced another increase in mortgage rates available through brokers on Thursday, bringing many packages above the 6% barrier, infuriating many homeowners and potential buyers.
Lenders have regularly re-priced house loan packages in recent weeks in an effort to stay up with skyrocketing funding costs, fueled by anticipation of further interest rate hikes from the Bank of England as it confronts stubbornly high inflation.
According to emails seen by Reuters, Barclays, NatWest, and Virgin Money notified brokers that rates on various mortgage products will rise again on Friday.
Nationwide Building Society, another major lender, raised rates on products offered via brokers earlier on Thursday.
“As mortgage rates continue to rise, the property market is being pushed further towards a cliff edge and there’s no real help in sight,” mortgage broker Lewis Shaw of Shaw Financial Services said.
Oxford Economics, a consultancy, said it now expected a peak-to-trough drop in house prices of around 13%.
“The high share of fixed-rate deals and a limited rise in unemployment mean we still expect the downturn to be more of a slow puncture, with prices falling steadily over a couple of years, rather than a sudden, sharp drop,” said Andrew Goodwin, Oxford Economics’ chief UK economist.
Two-year swap rates, a key predictor of mortgage borrowing costs, increased by 0.83 percentage point in June.
If it holds until the end of Friday, it will be the greatest one-month increase since May 1989, with the exception of the market turmoil caused by former Prime Minister Liz Truss’s economic plan late last year.
According to home industry researcher Neal Hudson, founder of consultancy BuiltPlace, mortgage rates of 6% imply the same financial pressure from repayments as they did in the late 1980s, despite mortgage rates being approximately 13% at the time.
Mortgage borrowers now borrow substantially larger sums relative to their income, with a ratio that has climbed from 2.0 in the late 1980s to about 3.5 today, while changes in taxes and mortgage products have also changed the equation.
Bank of England data released on Thursday indicated that lenders authorized more mortgages than expected in May, but that the value of mortgage lending contracted for the second month in a row for the first time since records began in 1986.