FTSE 350 housebuilders were deep in the red in Wednesday morning trade as hotter than expected increased the chances of higher mortgage rates in the coming months.
Hundreds of thousands of households will see fixed-rate deals come to an end this year and will face significantly higher mortgage rates. Variable-rate mortgage holders have suffered higher mortgage payments over the last year and will continue to do so.
“For anyone with a variable mortgage, the likelihood of another rate rise tomorrow means yet more pain. Plenty of those who moved onto a variable deal when their fixed rate expired had expected rates to have started to ease by now, so there’s a growing risk of rises that people hadn’t expected and cannot afford,” said Sarah Coles, head of personal finance, Hargreaves Lansdown.
“For anyone looking for a fixed rate, the picture is even bleaker. It has already been a torrid few weeks, as mortgage rates have shot up. The market is pricing in several hikes over the coming months. Just ahead of the announcement, it was expecting rates to peak at 5.81% in February, and only start to fall gradually from there.
“This has pushed the average two-year fixed rate mortgage over 6%. Higher core inflation is likely to reinforce the market’s conviction that rates will need to go significantly higher, and could power even higher rate expectations further down the line. Even the concern that rates could rise would bring more mortgage misery for anyone looking for a new deal or facing a remortgage.”
The UK government has ruled out providing direct fiscal support to mortgage holders. Instead, they are encouraging lenders to work with households in financial difficulties and provide options to avoid repossessions. Some are sceptical of the real-world outcome of these efforts.
FTSE 350 Housebuilders
The headwinds facing the UK housing market were reflected in the FTSE 350’s housebuilders on Wednesday with Persimmon, Taylor Wimpey, Barratt Developments, Crest Nicholson, Redrow and Vistry among the worst performers.
Berkeley Group Holdings was down over 3% despite releasing upbeat full-year results on Wednesday.
“Berkeley delivered a solid set of results despite the housing market sitting on shaky ground. The group sold more houses in the period and pricing remained resilient across the group’s London-focused operations, helping pre-tax profits to rise higher,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.
