Rishi Sunak rules out help for homeowners as mortgage rates top six per cent
Prime Minister Rishi Sunak today ruled out helping struggling mortgage holders despite rates breaching the six per cent mark for the first time since December.
Amid surging mortgage rates, the Prime Minister said the government needed to “stick to the plan” to halve inflation rather than offer support to mortgage holders.
Speaking on ITV’s Good Morning Britain, Sunak 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.”
Mortgage rates have rocketed in recent weeks as inflation has remained unexpectedly high. As a result markets now expect the Bank of England to hike interest rates to near six per cent, up from 4.5 per cent at the moment.
The rate of price increases is tipped to have dropped to 8.3 per cent in May from 8.7 per cent in April, figures from the Office for National Statistics on Wednesday are likely to show. However, core inflation is projected to remain high, forcing Bank Governor Andrew Bailey and co into a thirteenth successive interest rate rise on Thursday, likely by 25 basis points.
On the back of this, mortgage rates have spiralled to the highest levels since last Christmas, with banks pulling deals at short notice and putting more costly offers back on the market.
According to Moneyfacts, the average rate on a two-year fixed rate mortgage climbed to 6.01 per cent on Monday morning while the average rate available on a five-year deal was 5.67 per cent.
Last October, following the mini-budget, the average two-year rate was 6.65 per cent while the typical five-year rate was 6.51 per cent. Lenders price their products based on rates in financial markets.
According to the Resolution Foundation, more than 1m people are expected to remortgage over the next year, raising average annual mortgage repayments for this group by £2,900 next year.
The think tank predicts that the average two-year fixed-rate mortgage will not fall below 4.5 per cent until the end of 2027.
Economists have warned that the UK economy could slip into recession as a result of homeowners responding to higher mortgage rates by slashing spending.
The Lib Dems have called for a £3bn mortgage support fund, although this proposal was slammed as “terrible economics” by experts.
While ruling out mortgage support, Sunak highlighted that there is already support available.
“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,” he said.
There is a risk that inflation could stay high if the government shields homeowners from rising mortgage rates. Such a move would partially protect their finances, keeping demand higher than necessary to get inflation back down to the two per cent target.