Mortgage payers taking out new loans today are now facing the biggest home loan squeeze since the early 1990s housing crash, with the pain only set to worsen in the coming months.
The average rate on a new five-year mortgage has now ticked up to 5.54%, according to Moneyfacts.
This is, in headline terms, the highest level since 2008.
However, once you adjust for the fact that today’s mortgage holders have higher debt and lower incomes relative to their monthly payments, the current burden is the highest since 1991, when headline new mortgage rates averaged nearly 13%.
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‘No alternative’ to interest rate rise
The current rate on two-year mortgage fixes is even higher at 5.9 %, which in headline terms is the highest since 2000.
However, with markets now expecting the Bank of England (BoE) to raise its official interest rate as high as 5.75% by the turn of the coming year, the mortgage squeeze is projected to worsen.
The rates paid by consumers are generally higher than the official Bank rate.
The upshot is that it is now not implausible that the repayment burden for those refixing their mortgages could soon equal or surpass the peak in the late 1980s.
BoE behind the curve?
It comes amid growing consternation about the level of both price and wage inflation in the UK, with economists questioning whether the Bank is dangerously behind the curve on the cost of living, and will have to lift borrowing costs to painful levels to bring it back under control.
The interest rate on two-year UK government bonds is now higher than it was after the mini-budget last year.
The reasons are somewhat different: the leap last year was partly a symptom of financial instability following the short-lived tax cutting plans announced by the then chancellor Kwasi Kwarteng.
The current leap is largely down to recent surprises on inflation.
Economists warn that with the UK facing potentially higher price rises than many other leading economies, British interest rates could be higher for some time to come. That in turn raises the chances of a recession.
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