Homeowners ‘trapped’ as mortgage rates soar to highest level in 15 years

Mortgage costs have hit the highest level in 15 years after the rate on a two-year fixed deal reached 6.66% – a level not seen since August 2008. Mortgage costs have continued to rise as lenders battle with rising inflation and interest rates, leaving homeowners and prospective homebuyers in limbo. Lenders are set to be questioned by MPs today as the uncertainty in the mortgage market highlights the need for more options for homebuyers when purchasing a property. CEO and founder of Allbricks, Shahram Shaida, offers insight on the importance of providing property ownership which is not susceptible to interest rate fluctuation.

Allbricks provides a new way to buy a home, instead of taking out a mortgage, home buyers co-invest with qualified property investors to purchase the home, providing an option which is not vulnerable to interest rate fluctuation. From here the homebuyer pays rent on the portion they don’t own as a dividend for the investors, and regularly has the chance to buy a greater stake in their home until they own it outright.

The rise in rates comes amidst nearly 10% of mortgage deals being taken off the market by lenders due to concerns about increasing interest rates. According to Moneyfacts, the figures indicate that approximately 800 residential and buy-to-let deals have been withdrawn in total. Homeowners throughout the UK will now have to spend nearly an extra £9 billion in interest over 2023 and 2024 as they are forced to refinance at rates that are double what they used to be, according to the Centre for Economics and Business Research. The recent rises in mortgage costs are also likely to have a knock-on effect on renters who could face higher payments as landlords look to soften the cost of higher mortgages.

Data from trade association, UK Finance, found that 13% of new mortgages taken out in the three months to April were variable rate deals as homeowners are taking a chance that mortgage rates will fall in the long-term. However, new data from Knight Frank has revealed 41% of Brits are now locking-in their variable rate deals, in case borrowing costs climb further. Concerningly, due to the volatility of the current market, rates could eventually fall, leaving many stuck with a mortgage that they cannot afford.

Shahram Shaida, CEO of Allbricks, provides insight on the current mortgage situation in the UK property market:

“Jeremy Hunt on behalf of the government, openly asked the banks to make a change in their operating practices in June. However, the reality is while banks aren’t passing on the interest rate hikes to our saving accounts, they are very quick to raise our mortgage rates. Ultimately, banks don’t have to pass on the interest rate hikes to consumers, but as the rate hikes enable them to make a lot of money, they aren’t incentivised to do otherwise. And therein lies the problem. Unfortunately, interest rate hikes are a blunt instrument to adjust the economy that on the whole, negatively impacts anyone with a mortgage. Rising interest rates only hits 1/3 of the UK population, only the mortgage holders which seems incredibly unfair.

“I believe conscientious capitalism is the way forward. With wealth should come responsibility and a duty to improve our neighbourhoods, communities, and the world. Money should not be the end goal; money should be the fuel to facilitate a better outcome. But banks are too large and too complicated to approach the mortgage industry this way until competition forces the change. Allbricks is that change.

“100% Mortgages are just a marketing ploy. This isn’t the first time they were highlighted but the fact is years after being launched very few if any mortgages were actually issued. The challenges these mortgages come with are blatantly obvious. With our current market and house prices declining, your chances of getting immediately into a negative equity situation are almost guaranteed. Why, when interest rates are rising, would you knowingly subject anyone to this, it’s almost criminal in nature. We have to start creating a system that supports each other rather than one that looks to take advantage of those most at risk. We can have a real estate market that enables everyone, not just the one per cent of the one-percenters, the opportunity to benefit.

“Unlike a mortgage, Allbricks avoids negative equity because we are not leveraged. There is no loan and no debt. You’ll never owe more than you own.”