Bad news for homeowners as interest rates to rise again next month

11 July 2023 , 21:30

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The average two-year fixed rate mortgage reached 6.66 per cent yesterday (Image: Getty Images)

Mortgage costs have hit a 15-year high, with warnings the Bank of England will announce another rate hike next month.

The average two-year fixed rate mortgage reached 6.66 per cent yesterday, industry experts Moneyfacts revealed, passing the peak in the wake of the Tories’ disastrous mini-Budget last autumn.

Experts predict the Bank of England will increase its base rate to the highest level since December 2017 in August as figures showed a joint record rise in wages.

Average pay jumped 7.3 per cent year-on year between March and May, the Office for National Statistics said. Soaring inflation and a worker shortage have led to employers agreeing bigger wage increases.

The Bank of England is predicted to jack-up its base rate from five per cent to 5.5 per cent on August 1 in a bid to cool inflation, even if it risks the economy falling into recession. Yet most workers are still enduring a real terms pay cut because inflation is running at 8.7 per cent.

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The hit is worse for public sector workers, where average pay is up 5.8 per cent in the past year. Chancellor Jeremy Hunt and Bank of England Governor Andrew Bailey joined forces this week to call for wage constraint.

But TUC General Secretary Paul Nowak said: “The government must stop scapegoating workers for its failures. Wages are not driving inflation – they are not even keeping up with it."

The leap in mortgage rates is a hammer blow to first-time buyers and homeowners remortgaging. Around 800,000 borrowers with fixed rate mortgages will come off cheap rates in the second half of this year, and 1.6 million deals by the end in 2024.

They face a big shock when they getting a replacement. Tenants, many of whom have seen rents surge, risk being hit if their landlord’s buy-to-let mortgage costs jump.

Lisa Nandy, Labour’s Shadow Housing Secretary, said: “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.

Lenders are “stress testing” borrowers to check if they could cope with mortgage rates hitting nine per cent, MPs heard yesterday.

Graham Hiscott