Mortgage rates soar again to surpass Liz Truss mini-Budget peak

‘Personal hell’ for homewners as average two-year deal reach 6.66 per cent – rates not seen since 2008 banking crash

Archie Mitchell,Adam Forrest
Tuesday 11 July 2023 19:20 BST
Martin Lewis warns of 'dangerous' mortgage decisions homeowners could make

Support truly
independent journalism

Our mission is to deliver unbiased, fact-based reporting that holds power to account and exposes the truth.

Whether $5 or $50, every contribution counts.

Support us to deliver journalism without an agenda.

Louise Thomas

Louise Thomas


Homeowners face fresh mortgage misery after rates surpassed the peak seen in the wake of Liz Truss’s disastrous mini-Budget last autumn – rising to the highest level since the financial crisis.

As the Bank of England’s recent interest rate hikes push up the cost of borrowing, average two-year fixed-rate deals reached 6.66 per cent on Tuesday, according to figures from Moneyfacts.

That is higher than the 6.65 per cent seen on 20 October 2022 amid the turmoil that followed Ms Truss and Kwasi Kwarteng’s budget and rates now stand at a level not seen since August 2008 at the height of the global financial crisis.

Two UK lenders, Santander and Nationwide Building Society, said customers moving to new deals were being hit by an increase in payments of around £200 a month.

Those increases will pile further pressure on homeowners, with millions of mortgage deals to expire before the end of next year.

Rishi Sunak acknowledged “things are difficult” for families struggling with rising mortgage rates, but backed the Bank of England’s hikes, saying curbing inflation is “crucial”.

Chancellor Jeremy Hunt and Bank of England governor Andrew Bailey called on Monday night for wage restraint to help control inflation.

Also in a bid to curb spiralling price rises, the Bank of England last month hiked interest rates by 0.5 percentage points to 5 per cent, leaving homeowners scrambling for ways to meet rising loan repayments.

It is expected to push up rates again at a meeting in August, with Tuesday’s wage growth data making further hikes even more likely.

Sunak and Hunt under pressure over rising interest rates
Sunak and Hunt under pressure over rising interest rates (Downing Street)

But Professor Abhinay Muthoo, a fellow at the National Institute for Economic and Social Research, urged the Bank to avoid a knee-jerk reaction and urged Mr Bailey to set out a “coordinated, 12-month plan” of how it will bring inflation under control.

“It is currently chasing its tail, but what is missing is a plan of how they are going to bring inflation down in the next year,” he told The Independent.

Prof Muthoo also called on Mr Sunak to show some “flexibility” on his key pledge to halve inflation. Instead of being “dogmatic” about the pledge, professor Muthoo urged the PM to “think of imaginative ways to support people through this crisis”.

Mr Sunak admitted inflation is “proving to be more persistent than people anticipated” but said this does not mean his course of action is “wrong”.

There is currently a knee-jerk reaction on policy, but no coordinated plan

Professor Abhinay Muthoo

Speaking to broadcasters in Lithuania, where he is attending the Nato summit, Mr Sunak said: “I know things are difficult for many families across the country. The UK is not alone in experiencing a rise in interest rates ... the crucial thing that we have to do is bring inflation down.

“Of course, that is proving to be more persistent than people anticipated, but that doesn’t mean the course of action is wrong. We’ve got to stick to it.”

But Tory MP Lucy Allan, who warned in June that Britain was heading for a “mortgage catastrophe”, told The Independent a change of course was needed.

Ms Allan said it was “difficult to see the economic logic” of hitting a fifth of the population with rapidly rising mortgage bills. “They don’t seem to understand that it doesn’t work like that anymore,” she added.

Ms Allan said those on long-term fixed mortgages are “unaffected” and blasted a mistaken assumption that those with mortgages are wealthy and have disposable income.

She added: “If you are a mortgage holder, not on a long-term fixed rate, you do not have disposable income. You are begging and borrowing from friends and family to pay your mortgage or making plans to sell your family home. The government needs to rein in its spending.”

Some owners facing negative equity problem
Some owners facing negative equity problem (PA)

Labour accused the government of hitting households with a “mortgage bombshell”. Shadow housing secretary Lisa Nandy said: “Millions are feeling the pain from this Tory economic failure.

She added: “But the fact of the matter is that the Tories have inflicted households with a mortgage bombshell, let renters down and failed to build the homes we need.”

And Riz Malik, director of Southend-on-Sea-based independent mortgage broker R3 Mortgages, said the government and Bank were equally to blame for spiralling mortgage rates.

Mr Malik said many homeowners “will be in a personal hell”, adding: “The government and the Bank of England are equally to blame for this mess. As rates surpass the rule of Truss and Kwarteng it’s only fair that Sunak, Hunt, Bailey and the whole MPC suffer the same fate.”

Mortgage brokers say many homeowners facing ‘personal hell’
Mortgage brokers say many homeowners facing ‘personal hell’ (AP)

The latest figures came as mortgage lenders faced a grilling from parliament’s treasury committee on rising rates, house prices and forbearance.

Santander UK’s mortgage director Bradley Fordham told MPs that arrears, or households struggling to keep up with mortgage payments, were at “relatively low” levels, despite a “small uptick”.

But he said customers coming off deals and going onto new ones were seeing their monthly payments increase by over £200 per month.

Nationwide Building Society’s Henry Jordan said its customers were seeing monthly increases of around £235. He told MPs that mortgage rates could rise to a “tipping point” at which even interest-only deals “won’t be sufficient to offset the increase in payments that customer will see”.

Andrew Asaam, homes director Lloyds Banking Group, told MPs that falling house price could leave some mortgage holders struggling with negative equity – owing more to their lender than their property is worth.

He said: “We need to make sure that those first-time buyers are resilient, ie they can afford to stay in their homes through a two-year period where house prices might be falling, for example, and they are aware that they could end up in negative equity.”

Mr Hunt recently unveiled a so-called mortgage charter, agreed with Britain’s leading banks, to help struggling borrowers. It includes a commitment by lenders to help customers access payment holidays, switch to interest-only payments or extend their repayment terms.

But Mr Fordham told MPs on Tuesday that less than 4 per cent of its customers had inquired about “mortgage charter-type solutions”.

Meanwhile, the International Monetary Fund (IMF) warned that the Bank of England may have to keep interest rates high for an extended period to tame UK inflation.

“The policy rate may have to be raised further and would need to remain higher for longer to durably lower inflation and keep inflation expectations anchored,” the organisation said.

In a scathing assessment, the IMF also said says that the UK had been a “strong performer” among the G7 economies prior to the 2008 banking crisis – but said “momentum” was lost in the middle of the 2010s.

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies


Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in