The UK Prime Minister has urged individuals who own homes or have borrowed money to remain calm and composed as interest rates increase in an effort to combat persistent inflation. Rishi Sunak emphasised the need to stay resolute, adhere to the established plan, and trust that the country will overcome these challenges.
“The Bank of England” recently raised interest rates to their highest level in 15 years, resulting in increased mortgage payments for millions of people. Additionally, renters may face higher rent or the possibility of landlords selling their properties due to the rate hike, as reported by the “National Residential Landlords Association.”
Despite criticism from some Conservative members who believe the Bank of England has not done enough to bring inflation back to its target of 2%, Mr. Sunak continues to support the institution. Despite the Bank having raised interest rates 13 times since December 2021, inflation, which measures the pace of price increases, remained at 8.7% in May. Mr. Sunak acknowledged the difficulty of the situation but emphasised the existence of a comprehensive plan that will lead the country through these tough times.
Leading up to the interest rate hike, banks and building societies began withdrawing mortgage offers in anticipation of the changes. Consequently, the average interest rates for two-year and five-year fixed residential mortgages have risen to 6.19% and 5.82%, respectively. In comparison, rates were around 3% in June of the previous year. Chancellor Jeremy Hunt recently met with “UK banks,” reaching an agreement that enables borrowers to temporarily modify their mortgage terms. This voluntary measure allows homeowners to pay only the interest on their mortgages without affecting their credit scores.
“The Labour Party” has demanded that these agreements become mandatory and be implemented across the entire banking sector. Without this change, Labour’s housing secretary, Lisa Nandy, estimates that approximately two million people will not benefit from these adjustments. On the other hand, the Liberal Democrats propose the creation of a targeted Mortgage Protection Fund. This fund would provide monthly grants of up to £300 to homeowners with the lowest incomes or those experiencing the most severe increases in interest rates.