Finanze® Daily Digest - 05/10/2022

The Brief: Mortgage rates are now closer to 6% after lenders resumed their activities following the market turmoil that shook UK gilts last week. Moneyfacts reports that the two-year fixed-rate mortgage reached 5.75 per cent on Monday, which Bloomberg estimates to be around £1,325 monthly from only £725 the previous year.

Why It Matters: Banks temporarily pulled out some of their mortgages for new customers last week in response to the rise in gilt yields that are typically used to price fixed-rate deals. Borrowers hurried to lock in deals as analysts anticipated that the return of lending institutions would constitute steep hikes in mortgage costs.

Finanze® Foresights: The consequences of rising mortgage prices will be brutal in the coming months, to say the least. It is estimated by the Bank of England (BoE) that more than two million homeowners will shift to new mortgage deals once their fixed-rate mortgages expire between today and until 2024. Many homeowners have also resorted to early termination to secure new deals despite the high penalties involved. For now, households will have to reduce their non-discretionary purchases to adjust to their higher monthly mortgage obligations. However, we expect that once financial markets’ uncertainty eases, lender repricing will be averted. This begins once the Office for Budget Responsibility’s (OBR) forecast report is published and the government’s fiscal response is finally aligned with the BoE’s monetary policies.

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