Mortgage rates to ‘jolt market’ as analyst predicts doom ‘ripple effect’ for homeowners | City & Business | Finance

Sky-high mortgage rates will “jolt” the market and spark a “ripple effect throughout the economy”, an analyst has predicted, amid turmoil in the mortgage sector sparked by the mini-budget chaos. Senior market analyst Craig Erlam was speaking after it was revealed two-year and five-year fixed rates now both stand at more than six percent on average, according to Moneyfacts.co.uk.

The typical five-year fixed-rate mortgage on Thursday was 6.02 percent, Moneyfacts said, having crept up from 5.97 percent on Wednesday.

The last time average five-year fixed-rate mortgages were at six percent was in February 2010, when the rate was 6.00 percent.

The average two-year fixed-rate mortgage stands at 6.11 percent, having breached the 6 percent mark on Wednesday, for the first time since November 2008.

He said the rates would cause a “real negative impact on the economy” because people would have less money to spend in their pockets.

Mr Erlam added: “You struggle to see a manner in a way in which it doesn’t cause a jolt in the markets.”

He said the massive surge would mean people who can even afford the new jumps, would have to see their money “come from somewhere”.

The market analyst continued: “So it’s going to have a real negative impact on the economy.

“If people are paying £500 extra, for example in their mortgages each month that’s £500 less than they’ve got to spend or save or a combination of the two.

“So there is going to be ripple effect throughout the economy as a result of these sky high mortgage rates”

He said Prime Minister Liz Truss “doesn’t seem to understand the gravity” of a spike in borrowing costs.

Mr Erlam added: “She just described it as kind of a global phenomenon that’s happening all around the world. It’s not. There is a certain extent to which boring costs are rising around the world because of inflation, commodity prices, etc.

“And then there’s the self inflicted wound aspect which seems to be happening here in the UK and not in many other places. That’s when fiscal policy and monetary policy just simply don’t align.

“It’s all well and good having a growth plan. But if people are paying more in mortgages than they’re saving in taxes, then what’s the point?”

It comes as Chancellor Kwasi Kwarteng is to meet with the UK’s banks and building societies ahead of his upcoming plans to loosen regulation in the financial services sector.

But it comes amid increasing woes in the lending market, with a number of banks pulling mortgage deals in the last week and hiking mortgage rates.

Swap rates, which mortgage pricing is based on, have increased at unprecedented levels in response to the current economic conditions and amid further predicted rises in the Bank of England base rate, which currently sits at 2.25 percent.

HSBC, Santander and Virgin Money are among the lending giants that had withdrawn products from the market for new borrowers since the Government unveiled its mini-budget.