Mortgage providers have begun raising interest rates to levels not seen since the 2008 financial crisis as markets continue to react to last Friday’s mini-budget, with some homeowners expected to pay hundreds of pounds extra on monthly repayments as a result.
Nationwide has increased its fixed-rate mortgages, with its two-year rate rising to 5.59 per cent – up from 2.54 per cent just three months ago.
Other banks have begun to pull or amend their mortgage deals over fears the Bank of England could be forced to raise interest rates to 6 per cent next year in response to the economic fallout from the mini-budget.
According to RightMove, first-time buyers face monthly repayments upwards of £1,100 – a third more than they were paying in January.
Crisis, a national charity for people experiencing homelessness, said reports that mortgages may become out of reach for people are “extremely concerning”.
Matt Downie, chief executive at Crisis, told The Independent: “We’re also worried about the knock-on effect on renters. We were already seeing frighteningly high numbers of private renters in England being pushed towards homelessness at the start of the year.”
The number of households at risk of homelessness because landlords wanted to sell or re-let their property doubled to 8,750 in the first quarter of 2022, up by 116 per cent on the previous year.
“The worry is that if mortgage rates increase, landlords who are renting out their properties may pass these costs onto their tenants,” Mr Downie added.
“The 2021 English Housing Survey shows that 57 per cent of landlords had a buy-to-let mortgage – so that could lead to a huge number of renters having the higher costs passed onto them.
“And with housing benefit falling further and further behind actual rents, people on lower incomes are simply unable to shoulder any more cost increases.”
Mr Downie urged the government to “urgently” invest in housing benefits to address the rising cost of rents.
“It would mean tenants can cover the cost of their rent and help landlords keep their tenants,” he added. “It is essential in preventing soaring levels of homelessness being a tragic consequence of these dire economic times.”
The predicted increase in interest rates to 6 per cent would be a significant blow for around two million homeowners in the UK who have variable loans.
There are also a further 1.8 million borrowers who are currently locked into cheap fixed deals which are due to expire over the next year, meaning they could be forced to pay thousands of pounds more a year when they come to renew their mortgages.
The debt charity StepChange said one in seven of its new clients are mortgage holders, warning that “for them a potential sharp rise in mortgage rates will be a worrying prospect”.
Sue Anderson, head of media at StepChange, said: “Even if people are on a fixed rate mortgage now, they face the prospect of a rate hike when their current deal expires.
“When homeowners are already working hard to repay other non-mortgage debt, and facing rising cost of living pressures alongside, this kind of financial shock has the potential to knock them off track.
“A typical mortgage rate on mortgages being arranged for clients by StepChange’s mortgage advice team has already risen from 2.5 per cent in January to 4.6 per cent in September, before recent turmoil, and will certainly rise further as the market adjusts.
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“The more that people have to pay for their mortgage, the less budget surplus they have available to pay other debts and bills – so the wider squeeze on homeowner finances shouldn’t be underestimated, even if mortgage arrears remain under control.”
Mortgage borrowers were hit overnight by a record overnight drop in the choice of home loan products as the economic fallout from Friday’s mini-Budget continues.
Moneyfacts.co.uk said 935 fewer residential mortgage products were on the market on Wednesday compared with Tuesday – the highest since its records began – following the uncertainty over interest rates.
In response to the economic turmoil, the Bank of England has launched an emergency UK government bond-buying programme to prevent borrowing costs from spiralling out of control and stave off a “material risk to UK financial stability”.
The Bank announced it was stepping in to buy government bonds – known as gilts – at an “urgent pace” after fears over the government’s economic policies sent the pound tumbling and sparked a sell-off in the gilts market.