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Markets predict UK interest rates could hit 6% by end of year


Homeowners face yet more mortgage pain as markets predict interest rates could hit 6% by the end of the year

Homeowners were yesterday facing further mortgage pain as the markets predicted interest rates could hit 6 per cent by the end of the year.

It came after official data showed UK wages rose at their fastest pace on record outside of the pandemic in the three months to April.

Average pay excluding bonuses jumped 7.2 per cent over this period, according to the Office for National Statistics (ONS) – although due to inflation salaries fell 1.3 per cent in real terms.

The jump in pay rattled nerves at the Bank of England, which has previously warned large pay rises for workers risks fuelling price increases.

This is a phenomenon known as a ‘wage-price spiral’, which increases pressure on the central bank to increase interest rates to keep inflation under control.

Markets predicted interest rates could hit 6 per cent by the end of the year [File image]

Markets predicted interest rates could hit 6 per cent by the end of the year [File image]

But while higher rates are good news for savers, mortgage holders are facing ever-higher repayment costs.

Santander this week became the latest major lender to temporarily pull its new mortgage deals due to ‘market conditions’. The higher cost of mortgages is also hitting the rental market, with landlord profits at their lowest level in 16 years.

Estate agents Savills warned there was a ‘real risk’ the squeeze on incomes could push more landlords to sell up.

The Bank of England has already raised interest rates 12 times since December 2021, when they were at 0.1 per cent, in a bid to bring down inflation.

Another hike in rates could come as soon as next week, with financial markets forecasting the Bank will raise rates from 4.5 per cent to at least 4.75 per cent, their highest level since 2008.

They are also predicting that rates will reach at least 5.75 per cent by the end of 2023 and could even hit 6 per cent for the first time since early 2001, according to data platform Refinitiv.

David Hollingworth, of L&C Mortgages, said yesterday’s data ‘wouldn’t bring any comfort for mortgage borrowers’. 

‘It’s going to add more upward pressure… and exacerbate an already fast-moving market,’ he added.

A third of voters blame the Government for soaring interest rates, a YouGov poll has found. Chancellor Jeremy Hunt said yesterday: ‘We are really very aware of the pain felt by many families.

‘The biggest single thing that we can do to reduce the pressure on families is to support the Bank of England as they bear down on inflation and that is the number one priority.’

Downing Street said lenders should be prepared to help out mortgage holders who get into difficulties due to rising rates.

What to do if you need a mortgage 

Borrowers who need to find a mortgage because their current fixed rate deal is coming to an end, or because they have agreed a house purchase, should explore their options as soon as possible.

This is Money’s best mortgage rates calculator powered by L&C can show you deals that match your mortgage and property value

What if I need to remortgage? 

Borrowers should compare rates, speak to a mortgage broker and be prepared to act to secure a rate. 

Anyone with a fixed-rate deal ending within the next six to nine months should look into how much it would cost them to remortgage now – and consider locking into a new deal. 

Most mortgage deals allow fees to be added the loan and they are then only charged when it is taken out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I am buying a home? 

Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be. 

Home buyers should beware overstretching themselves and be prepared for the possibility that house prices may fall from their current high levels, due to  higher mortgage rates limiting people’s borrowing ability.

How to compare mortgage costs 

The best way to compare mortgage costs and find the right deal for you is to speak to a good broker.

You can use our best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage to compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you.

> Check the best fixed rate mortgages you could apply for 



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