By Millie Turner
Millions will face difficulties paying their mortgages if rates hit six per cent, a research note issued by Morgan Stanley has warned.
The US bank said there is “significant stress” building in the UK’s mortgage market, as house prices spiral out of control and the Bank of England seeks to tame rising inflation.
Last week, inflation hit a 40-year high of 10.1 per cent.
“Our analysis shows that 30-40 per cent of households in lower income brackets will face difficulties paying their mortgages,” the bank added. “We believe it is unlikely [mortgage rates] will come down quickly.”
Banks have axed around 60 per cent of mortgage offerings for borrowers with small deposits since the beginning of the year, separate data by consumer site Moneyfacts showed.
It pushes homeownership further out of reach for millions.
Former chancellor Rishi Sunak stepping into No. 10 is expected to bring a level of confidence back into the market following a disastrous mini-budget in September, research director at Savills, Lawrence Bowles, explained.
“Anything that helps bring certainty and confidence back to the market is likely to reduce borrowing costs. That, in turn, will reduce affordability pressure for households securing mortgage finance, for housebuilders starting on new sites, and for investors buying and operating homes for rent,” he said.
“We can still expect to see affordability pressure grow in the coming months as mortgage costs rise. We can take some comfort, at least, that this pressure will peak at lower levels than we might have feared previously.”
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