Although the government has made tackling inflation one of its core priorities for 2023, the rate of price increases remains stubbornly high – staying stuck at 8.7 per cent in the year to May.
As a result, many analysts and observers are expecting the Bank of England to continue hiking up interest rates for some time.
So what does this mean for you and your mortgage?
Well, the mood music isn’t good, as the belief that interest rates will remain high is leading to mortgage rates going up. In fact, the average fixed two-year mortgage rate now stands at six per cent – and that’s putting households under huge pressure.
According to the Resolution Foundation:
the cost of a typical mortgage is likely to go up by three per cent of a typical household’s income this year;
the average two-year fixed rate mortgage is likely to hit 6.25 per cent within the next few months;
total annual mortgage repayments are likely to rise by £15.8 billion by 2026, and by £2,900 for the average household remortgaging in 2024.
In short, a crisis is looming, where many people simply cannot afford to keep up with their mortgage repayments, at a time when the cost of living is already soaring across the board.
More than 400,000 people are set to see their existing fixed deals end between July and September – and are facing grim choices and a massive increase in their monthly outgoings.
That has, unsurprisingly, led to calls for the government to take action comparable to the furlough scheme, which helped people who couldn’t work during the pandemic, or the Energy Price Guarantee scheme, which supported households struggling with rising energy bills.
But ministers have so far ruled out providing help to homeowners, with Chancellor of the Exchequer Jeremy Hunt explaining that injecting large amounts of cash into the economy would be inflationary.
Speaking in parliament, he said: “As much as we sympathise with the difficulties and do everything we can to help people seeing their mortgage costs go up, we won’t do anything that would mean we prolong inflation.”
However, Mr Hunt did state that he would be meeting major mortgage lenders to ask how they can help people struggling with higher mortgage payments, and what flexibilities might be possible for families in arrears.
Given the scale of the looming crisis, whether the government can hold this line remains to be seen, particularly as voters could be going to the polls next year.
As Simon Pittaway, senior economist at the Resolution Foundation, has pointed out, rising repayments will deal an “ongoing living standards blow to millions of households in the run-in to the general election”.
Could this factor alone encourage the government to provide direct financial support to households or intervene in the market in some other way?
We’ll be keeping a close eye on what happens, so we can advise you throughout these uncertain times.
If you have any questions about managing your finances against this tricky backdrop, please don’t hesitate to contact us, and we’ll be happy to help.