Mortgage rates: Is there more pain to come for households?

Here is a look at what is behind recent mortgage rate rises and what is predicted to happen next.

Mortgage rates have been on the increase recently (Joe Giddens/PA) (PA Archive)

Mortgage rates have continued to climb, with Nationwide Building Society raising rates from Friday.

Here is a look at what is happening in the mortgage market and where rates could go from here:

– What has been happening in the mortgage market in recent weeks?

Rates have been on the increase and some lenders temporarily withdrew deals available through brokers, later putting them back on sale, to help manage the flow of applications.

– Why have mortgage rates been increasing?

Some variable rate mortgage deals directly track the Bank of England base rate and they automatically increase in line with the base rate. The rate has climbed 12 times in a row.

Borrowers can also end up on a standard variable rate (SVR) when their initial mortgage deal ends. The SVR is set by lenders individually but it can often roughly follow movements in the base rate.

The bulk of mortgaged UK homeowners tend to take out fixed-rate deals. Swap rates underpin the pricing of fixed-rate mortgages and these have been rising amid expectations around inflation, which has turned out to be more “sticky” than some had expected.

The Consumer Prices Index (CPI) measure of inflation rose by 8.7% in the 12 months to April 2023, according to Office for National Statistics (ONS) figures.

– Is there more mortgage pain to come?

Given that a large chunk of homeowners are sitting on fixed rates, many are yet to feel the impact of recent mortgage rate increases on their budgets. This will add to the squeeze that households are already feeling from a range of other bills, such as surging food costs.

Around 800,000 fixed-rate deals are due to end in the second half of this year, according to trade association UK Finance.

– What is next for mortgage rates?

No one can say for certain what will happen to mortgage rates in the future.

What we do know, however, is that the next Bank of England base rate decision is next week.

Experts are predicting that there will be a 13th base rate increase, with a potential 0.25 percentage point rate hike, taking the base rate to 4.75%.

Meanwhile, fixed-rate mortgages have already been on an upward march.

The average two-year fixed-rate residential mortgage on the market was sitting at just below 6% on Friday, according to financial information website Moneyfactscompare.co.uk.

– What help is available if I am struggling with my payments?

Speak to your lender as early as possible. They may be able to suggest various options to keep monthly payments more manageable, although some, such as extending the mortgage term, may mean paying more over the longer term, so any decision needs to be weighed up carefully.

If you are coming to the end of a mortgage, a broker could help with finding a deal that is right for you.

Sam Richardson, deputy editor of Which? Money, said: “Mortgage lenders are obliged to offer support to their customers, so those struggling to meet mortgage payments should speak to their lender about what help is available.

“Doing so will not affect your credit rating. Further support may come in the form of temporary break from payments, interest-only repayments or extending the term of the mortgage.

“If you’re entitled to benefits such as universal credit, you may be able to apply for the Government’s support for mortgage interest loan scheme.”