UK banks fear further interest rate hikes
UK banks and property developers are abandoning mortgage deals due to record inflation and tighter monetary policy. At the same time, fixed interest rates continue to rise. In addition, the number of people seeking 35-year mortgages has increased to a record high. As a result, bank customers are trying to reduce their monthly payments by spreading them over longer periods.
In June 2023, the average mortgage rate in the UK reached 5.7%, but in May, it was 5.3%. This means that bank customers who borrowed £200,000 in June will pay £648 more per year than those who borrowed in May. The additional annual payment has risen by around £3,600.
UK banks and builders have started to reduce the number of mortgages they issue after forecasts of lower inflation failed to materialise. The inflation rate is now 8.7%, although experts had expected a lower figure. Such a result is likely to force the Bank of England to continue its interest rate policy. It could be as high as 5% by the end of 2023.
The situation in the mortgage lending sector
Interest rates on new loans continue to rise, affecting purchasing power. Unstable and increasing loan amounts are forcing consumers to look at other options for buying a home. For example, while the most popular and optimal mortgage term used to be 25 years, more people are now opting for a longer-term loan. UK bank statistics for March show that:
– 19% of the total number of mortgages were granted for 35 years or more;
– more than 50% of the loans were given for more than 30 years.
These figures are a record for the country. According to the UK Finance report, the number of 35-year loans is more than double what it was at the end of 2021 when the share of loans with that term was 9%. That’s when the UK regulator started to raise interest rates. They had been at 0.1% for a long time.
Consumers are opting for 35-year mortgages to reduce their monthly payments. However, they will have to pay a large amount over the life of the loan, which could lead to an increase in household debt.
According to official figures, more than 100,000 fixed-rate mortgages were taken out in June. A total of 371,000 fixed-rate loans were repaid between April and the end of June, a record for the country for the quarter.