Homeowners and potential buyers are being warned of an imminent rise in mortgage rates as UK borrowing reaches its highest level for 27 years.
Meanwhile, the economic turmoil in the bond market, where lenders obtain funding for mortgages, is creating a knock-on effect that could make fixed-rate mortgages increasingly expensive in the weeks ahead.
The warning comes amid growing financial pressure on Labour Party Chancellor Rachel Reeves, as the government grapples with rising costs and a fragile economic outlook. Experts now fear this volatility could signal a return to inflationary patterns not seen since the 1970s, leaving households facing a heavy financial burden.
Bond Market Turmoil Threatens Mortgage Stability
Mortgage rates, which had recently seen a slight decrease, are now poised to climb once again. Stuart Cheetham, chief executive of MPowered Mortgages, has warned that the recent reductions in mortgage rates are unlikely to last. He notes that continued bond market volatility is making it more costly for lenders to secure funding.
Paul Dales, chief UK economist at Capital Economics, predicts that mortgage rates could rise from 4.5 per cent in December to over 5 per cent in the coming weeks. According to Dales, this uptick could place further strain on household budgets already stretched by persistent inflation and rising living costs.
Further compounding the issue, Anita Wright, a chartered financial planner at Bolton James, has cautioned that the UK may be entering a
“vicious debt cycle.” She added: “The bond market is saying, ‘We’re pretty certain a second wave of inflation is coming back, similar to the 1970s.'”
Bank of England Faces Tough Decisions
Markets await the Bank of England’s next interest rate decision in February, speculation is growing over whether rates will remain unchanged despite calls for a cut. Russ Mould, investment director at AJ Bell, said he “wouldn’t be shocked” if the central bank opts to maintain rates in light of ongoing market instability.
Meanwhile, the government has sought to reassure both MPs and the public of its fiscal discipline. Darren Jones, the Treasury’s Chief Secretary, emphasised that the Chancellor would not borrow to fund day-to-day spending, despite rising economic pressures. He stated:
“There should be no doubt about the government’s commitment to economic stability and sound public finances. This is why meeting the fiscal rules is non-negotiable.”
Narrow Window for Economic Stability as OBR Awaits Key Data
The Office for Budget Responsibility (OBR) has yet to factor in the latest market data into its economic forecasts, with updated predictions expected closer to 26 March. This leaves a narrow window for market conditions to stabilise, though many experts are bracing for further turbulence.
Mohamed El-Erian, a former deputy director at the International Monetary Fund and president of Queens’ College, Cambridge, highlighted the significance of the coming weeks. “A lot will depend on what materialises on or around 20 January,” he commented, suggesting that key developments in the bond market could shape the Bank of England’s next steps and the broader economic outlook.
Mounting Pressure on Homeowners as Mortgage Rates Climb
For the millions of homeowners with fixed or variable-rate mortgages, the prospect of rising rates marks yet another financial hurdle. With inflationary concerns and borrowing costs on the rise, the pressure on household budgets is unlikely to ease soon.
Mortgage Hikes Hit Home
- Rising Monthly Payments: Those on variable-rate mortgages could see immediate increases in their monthly repayments, stretching disposable incomes further.
- Refinancing Challenges: Homeowners nearing the end of their fixed-rate deals may face higher costs when locking into a new rate.
- Affordability Pressures: First-time buyers may find it increasingly difficult to meet affordability criteria as banks tighten lending conditions.
As the government and central bank navigate these uncertain waters, the stakes could not be higher for the UK economy—or for those hoping to keep their mortgage repayments manageable.
Got a reaction? Share your thoughts in the comments
Enjoyed this article? Subscribe to our free Newsletter for captivating articles, exclusive content, and the latest news.
