The bad news for UK mortgage holders keeps on coming.
(Bloomberg) — The bad news for UK mortgage holders keeps on coming.
An unexpectedly high inflation reading on Wednesday led money markets to wager that Bank of England interest rates will peak as high as 5.5%. That’s a full percentage point higher than the current benchmark, which may lead to further upward pressure on mortgage rates in the coming months.
While UK inflation fell back to a single-digit rate in April, it’s still outpacing wage growth. That cost-of-living crisis is making it even harder for potential purchasers to meet the higher monthly costs required to pay for a property, contributing to net mortgage lending falling to virtually zero in March, according to Bank of England data.
More than a million homeowners will see their mortgage come due for refinancing this year. Those that haven’t yet secured a new deal now face even higher payments.
Swap rates, effectively the cost of borrowing from other banks to fund mortgages, had already risen by almost a percentage point in the past month even before this week’s inflation data. The BOE raised its key rate by 25 basis points to 4.5% in early May, and said more tightening may be needed.
“The further rise in swap rates today will hit affordability and demand,” said Niraj Shah, an economist at Bloomberg Economics. “We maintain our view that house prices will drop by about 10% from last year’s peak, with prices resuming a steeper decline later in 2023.”
Read More: UK INSIGHT: Housing Correction Finally Done? Model Says ‘No’
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.