Government urged to end ‘mortgage horror show’ as average two-year rate tops 6%

The Liberal Democrats said anything else but intervention would be “a disaster for struggling families”, as the average two-year fixed-rate deal on the market hit 6.01%.

The rise takes the average rate back towards territory last seen during the market volatility that followed last autumn’s mini-budget.

According to Moneyfactscompare.co.uk, the last time that the average two-year fixed-rate mortgage was 6% or higher was on December 4 2022.

Liberal Democrat leader Ed Davey said: “The time for the Government to step in is now, anything else will be a disaster for struggling families worried about losing their homes.

“This Government is sitting on their hands, giving no help to ordinary working people who suffer. It’s just plain wrong.

“Liberal Democrats are calling on Rishi Sunak to finally listen to those who need help and immediately end this mortgage horror show with a mortgage protection fund.”

David Linden, SNP social justice spokesperson, said: “The UK Government must take urgent action to protect people at risk of losing their homes – and to bring inflation and mortgage rates back down to manageable levels but independence in Europe is the only credible way for Scotland to secure sustained economic growth and reverse the damage being caused by Brexit.”

Downing Street acknowledged it was a “concerning time for homeowners, for mortgage holders” but said there was a “raft of support” already available.

The Prime Minister’s official spokesman said he was “not aware of any plans” for further interventions despite rising rates, pointing instead to cost-of-living measures already introduced, such as help with energy bills.

On help for mortgage holders, the spokesman said: “The Chancellor met with lenders in December, they agreed to support borrowers including through potential options such as term extensions, moving to interest-only payments where appropriate.

“The FCA (Financial Conduct Authority) has a new consumer duty which comes into force at the end of next month which is a step change on how firms are required to focus on delivering good outcomes for consumers.

“And of course there is Government support as well – the support for mortgage interest scheme – for struggling borrowers on certain benefits, we offer a loan to help people pay the interest on their mortgage.

“So there is a raft of support available but underpinning all of that is the fact that the biggest action the Government can do is to halve inflation.”

Around 2.4 million fixed-rate mortgages are due to end between now and the end of 2024, according to figures from UK Finance.

Many of these homeowners could be in for a bill shock when they come to remortgage, having been used to paying significantly lower rates.

According to the Resolution Foundation think-tank, annual mortgage repayments are set to rise by £2,900 for the average household remortgaging next year.

The Bank of England is expected to raise the base rate further on Thursday as it grapples with stubbornly high inflation. If this happens, it would immediately push up costs further for some borrowers on variable rate mortgages.

Speaking on website Newspage, Riz Malik, founder of R3 Mortgages, said: “Some lenders struggle to give us sufficient notice when withdrawing mortgage deals, often providing only a few hours’ notice.

“To prevent the issue from escalating, it is imperative to establish a mortgage task force to thoroughly examine all possible solutions given the severity of the current situation.”

Samuel Mather-Holgate, an independent financial adviser at Mather and Murray Financial said: “The quickest, easiest and most sensible thing the Government can do is to stop the Bank of England raising interest rates.”

According to Laith Khalaf, head of investment analysis at AJ Bell, the Bank of England is “caught between a rock and a hard place, as it has to choose between pushing more mortgage borrowers towards the brink and letting inflation run riot”.

Speaking to ITV’s Good Morning Britain, Prime Minister Rishi Sunak said that the most important way to keep costs an interest rates down was to halve inflation.

Mr Sunak also pointed to the support that is already available.

He said: “I know the anxiety people will have about the mortgage rates, that is why the first priority I set out at the beginning of the year was to halve inflation because that is the best and most important way that we can keep costs and interest rates down for people.

“We’ve got a clear plan to do that, it is delivering, we need to stick to the plan.

“But there is also support available for people. We have the mortgage guarantee scheme for first-time buyers and we have the support for mortgage interest scheme, which is there to help people as well.

“But look, that is why my first priority is to halve inflation, one of my other priorities is to cut the waiting lists.”

Some housing market experts raised concerns that giving some extra form of mortgage relief could create further issues and potentially make the situation worse.

Justin Moy, managing director at EHF Mortgages, told Newspage: “Giving mortgage holders some form of relief will only make the problem worse in the long term, and will be difficult to police.

“Swift action to reduce inflation, and keep it at a sensible level, along with sensible mortgage rates, will give us the best outcome in the shortest term.”

Graham Cox, founder at SelfEmployedMortgageHub.com, said: “Any mortgage interest relief or other support would increase inflation. It could also spook the markets.”

Jamie Lennox, director at Dimora Mortgages, said: “If the Government starts to help mortgage holders, tenants will also be asking for the same and it would be a case of where does it end? With many experiencing large increases in rent, there would be public outcry if support wasn’t offered further.”

Mortgage rates previously rocketed amid market turmoil after the mini-budget in September 2022. Average two and five-year fixed mortgage rates topped 6% last autumn, before later settling down.

By October 20 last year, the average five-year deal was 6.51% and a two-year product was 6.65% typically.

Moneyfacts’ figures also show the average five-year fixed-rate mortgage on the market is sitting at 5.67%, across all deposit sizes.

The choice of residential mortgages had fallen from 4,923 on Friday to 4,683 on Monday morning, the website said.

Mortgage rates have been rising amid expectations over inflation, which has been stickier than some had predicted. The Bank of England is expected to raise the base rate further on Thursday.

Some analysts expect the base rate to rise by another 0.25 percentage points on Thursday, taking the rate to 4.75%. This would immediately push up costs for people on variable rate tracker mortgages.

Rises in wages and living costs have fuelled expectations that interest rates will remain higher for longer. Mortgage providers have been withdrawing the availability of deals through some channels to manage the flow of applications and refreshing their ranges with higher rates.

The latest inflation data will be published by the Office for National Statistics (ONS) on Wednesday.

Levelling Up Secretary Michael Gove told Sky News’s Sophy Ridge on Sunday show: “When it comes to mortgages, it’s the independent Bank of England’s interest rate decisions that will govern that, but we are looking at everything that we can do in order to help homeowners through this difficult period.”

Sam Richardson, deputy editor of Which? Money, said last week: “Mortgage lenders are obliged to offer support to their customers, so those struggling to meet mortgage payments should speak to their lender about what help is available.”