Key events
Introduction: Mortgage rates move towards 6%
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK mortgage rates are heading towards 6% as the squeeze on borrowers tightens – prompting calls for the government to provide emergency help.
The average rate on a two-year fixed mortgages rose to 5.92% yesterday, up from 5.9% on Wednesday, and 5.26% at the start of last month.
Average five-year fixed rate mortgage rates hit 5.56 per cent, up from 5.54% 24 hours earlier – and 4.97% at the beginning of May.
Nationwide, the building society, is joining the rush to raise rates today – increasing its new fixed rates by up to 0.7 percentage points.
These moves come as City traders predict UK interest rates could hit 5.75% by the end of this year, up from 4.5% today. The Bank of England seems certain to raise interest rates next week.
The yield (or interest rate) on two-year government bonds – used to price fixed-term mortgages – is trading at 15-year highs this week.
UK inflation taking ‘longer than expected’ to cool down🚨🧵
Two-year gilt yields on Tuesday rose 0.26 points to 4.89%, compared with their peak of 4.64% in late Sept.
Markets expect the BoE to increase rates from 4.5% to 5.76%.$FTSE $SPX $QQQ $BTC $AMD pic.twitter.com/yLkp0kNeGJ
— Kapoor Kshitiz (@kshitizkapoor_) June 13, 2023
Although rates are below their levels before the 1990s housing crash, mortgages today are much higher – and mortgage payments make up a larger slice of people’s income.
So, the squeeze is already the worst since the early 90s, analysts say:
Not pretty.
Right now, based on rates currently available, those refixing or taking out new loans are entering the biggest mortgage squeeze since 1991.
This is not a projection. It’s happening RIGHT NOW.
NB the ’91 mortgage squeeze contributed to a mammoth housing crash/recession pic.twitter.com/mktnI8rxfa— Ed Conway (@EdConwaySky) June 14, 2023
The Liberal Democrats are calling for an emergency support fund for mortgage borrowers, which would provide temporary grants to those most at risk of losing their homes.
Liberal Democrat Treasury spokesperson Sarah Olney MP said earlier this week:
“This Conservative government has unleashed mortgage hell for millions of homeowners but isn’t lifting a finger to help.
“Rishi Sunak is totally out of touch with the concerns of people across the country worried sick about how they will afford their monthly mortgage payments.
“The Prime Minister should haul the banks into Downing Street and discuss what extra support can be given to homeowners on the brink. The very least that Conservative Ministers should do is take responsibility for the mess they’ve created instead of sitting on the sidelines.”
The inflation squeeze in the eurozone prompted the European Central Bank to lift its interest rates again yesterday.
But earlier today, the Bank of Japan maintained its ultra-easy monetary policy even though Japanese inflation is stronger-than-expected inflation. The BoJ signalled it would focus on supporting Japan’s fragile economic recovery, and remains confident that inflation will slow later this year.
European stock markets are set to open a little higher:
