Good morning. Some call it a catastrophe. Others prefer crisis, “ticking timebomb” or a plain, old-fashioned nightmare.
Whichever disaster movie term you prefer, this week’s news from the UK mortgage market is not at all good, with lenders’ interest rates soaring and millions of homeowners facing a huge jump in their monthly payments when their fixed-rate terms expire.
Brand new inflation figures released just minutes ago – the reason this email is a few minutes later than usual, in fact – show no change in the annual rate for May, still stubbornly stuck at 8.7%. That’s a surprise – analysts were expecting a slight dip.
And it remains far, far above the government’s target of just 2%.
The economics of all this may be complex, but what it means is simple: a likely further rise in Bank of England interest rates tomorrow, and lots more mortgage pain ahead.
I spoke to Richard Partington, the Guardian’s economics correspondent, about how this situation arose – and what worried homeowners can to do about it. First, the headlines.
Five big stories
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Titanic submarine | Canadian aircraft have detected “underwater noises in the search area” of the missing submersible Titan, the US Coast Guard has said, amid US media reports of regular “banging sounds”. Search efforts for the five people on board continue, but the air supply is dwindling, if they are still alive.
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Andrew Tate | Romanian prosecutors have sent Andrew Tate, his brother Tristan and two other suspects to trial on charges of human trafficking, rape and forming a criminal gang to sexually exploit women. The controversial influencer denies all allegations.
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Media | The Conservative party has been accused by 300 news organisations from around the world of setting a “dangerous precedent” internationally, after it introduced a £137 fee to report on its annual conference.
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Farming | An investigation has found that a major supplier of chicken to UK supermarkets is sourcing birds dosed with antibiotics “critical to human health”, as concerns grow about the spread of deadly superbugs.
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US news | Hunter Biden, the son of Joe Biden, will plead guilty to three federal crimes according to the US justice department. Biden is pleading guilty to two counts of wilful failure to pay income tax and a separate federal firearm offence, reports Reuters.
In depth: ‘Going into an election cycle, there is huge pressure on the government to react’
View image in fullscreenThe Bank of England, London. Photograph: Maja Smiejkowska/Reuters
This time last year, homeowners wanting to take out a new, two-year fixed-rate mortgage could borrow money at a rate of 3.14%, at a time when the Bank of England base rate was 1.25%.
This week, that same deal was on offer at 5.98%, with the average price for two-year fixes above 6%; the base rate currently is 4.5%. When the Bank of England’s monetary policy committee meets tomorrow, it is widely expected to raise that base rate further, for the 13th time since December 2021, to 4.75%. Observers now think it may top 6% by Christmas.
You don’t have to understand complex monetary policy to find those numbers alarming – and millions of people are already experiencing their real-life effects. When the Bank of England’s rate rises, so do the rates charged by mortgage lenders. But because most people with homeowner mortgages in Britain are on fixed-rate deals, the effect is usually delayed until those deals expire.
When they do, however, the increase in cost can be enormous – a £2,900 jump for the average household remortgaging next year, according to one thinktank. And between now and the end of 2024, more than 2.4m fixed-rate deals – that’s more than a quarter of those with that type of mortgage – will expire. That means a potentially terrible financial hit for many, and a huge political headache for the government.
How did we get into this mess?
“The mortgage market is being heavily affected by the Bank of England raising interest rates, in response to the highest rates of inflation since the early 1980s,” says Richard.
Much of this has been outside the government’s control, he says, driven in part by the disruption of the global supply chain due to Covid and the impact of the Russian invasion of Ukraine on energy prices. The UK’s inflation is the highest of any G7 nation, however – in large part because of the extremely tight jobs market and high numbers of vacancies, which has inevitably been affected by Brexit.
The issue has become particularly acute in recent weeks, he says, because new growth data and figures on consumer spending have suggested inflation will be harder to control than expected. That means even higher interest rates to come.
“A couple of weeks ago, the financial markets thought the Bank of England had almost finished raising interest rates. Now, they think inflation will be more stubborn in the UK than we hoped. The high street lenders have responded by putting up the rates that you can get on a new mortgage.”
What happens next?
View image in fullscreenRishi Sunak at a press conference in Dover, 2023. Photograph: Yui Mok/PA
For many people, an awful lot of financial pain. The problem is particularly acute in Britain, says Richard, because so many people are on a fixed-rate mortgage, and a lot of them secured their latest deal a few years ago when rates were at record lows – hence so many expiring around the same time. They may have been able to afford huge loans in the interim, but with the jump in rates, they are being clobbered.
There’s no doubt that this will have huge political consequences – remember, the next general election must be held no later than 28 January 2025. Tory MPs in marginal seats have been warning that angry voters struggling to meet mortgage payments will blame the government. Labour, inevitably, are calling the mortgage rise the “Tory mortgage penalty”.
House prices are already faltering and may fall by up to 10%, says Richard. “That might sound a lot, but it’s only going to take us back to where we were a couple of years ago, because of the way house prices really rocketed over the past couple of years. And then most economists think there’ll be a stabilisation in house prices, and then modest growth in future years.”
But despite the soaring costs, analysts are not expecting widespread repossessions, he says, as the rules on initial lending have got stricter in recent years.
What is the government going to do about it?
They stepped in with emergency measures when fuel prices rocketed, so surely the government will help people struggling now? Don’t count on it. Rishi Sunak has ruled out offering any extra help, saying the government needed to “stick to the plan” to reduce inflation.
That’s because – put brutally – the whole point of raising interest rates is to ensure people have less free cash, so they spend less and thus cool down the economy.
“But that’s the cold-headed economics,” says Richard. “In politics, there are many other considerations, and going into an election cycle there is going to be huge political pressure on the government to react because they’ll get punished at the ballot box.”
Tory MPs are split over whether to intervene, perhaps with tax relief on mortgage interest, Richard reported yesterday: “If we don’t help families now, all the other money that we have spent to help them will have been wasted if they lose their home,” backbencher Jake Berry told parliament on Tuesday.
The government has said it is leaning on banks and building societies to do more for those struggling – Jeremy Hunt, the chancellor, will meet major lenders on Friday – but may have to take other steps, too.
“I expect they will have to do something before the next election, whether it’s supporting first-time buyers or the construction of new affordable homes, or whether it’s something for the lowest income households that are affected by fast-rising mortgage rates.”
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I’m worried. What can I do?
It’s undoubtedly difficult out there, but there’s plenty of advice around. If you are looking for a mortgage now or soon, the Guardian’s Rupert Jones has put together this extremely helpful guide to your options.
If you worry you’ll struggle to meet payments, this guide from Money Saving Expert may help.
What else we’ve been reading
View image in fullscreenPrince Harry and his wife, Meghan, Duchess of Sussex. Photograph: Brendan McDermid/Reuters
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Arwa Mahdawi turns to some anonymous experts to unpick the events leading up to the implosion of the Duke and Duchess of Sussex’s podcasting careers. Nimo
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There were 492 West Indians on board the Empire Windrush when it docked at Tilbury in Essex in June 1948. One of them, Alford Gardner, is now 97. He tells his extraordinary story to Geneva Abdul (the pictures are wonderful, too). Esther
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How long can you go without doing your laundry? For one person that Emine Saner spoke to the answer was one year. Saner dives into the no-wash movement to understand why more people are using their washing machine less. Nimo
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Will Reddit prevail over the Redditors? Last week, many forums on the social media site went dark, as users protested against the site’s plans to charge some third party apps to access its data, worried about accessibility and content moderation. Reddit says it wants to “grow up and behave like an adult company” (ouch!). The Guardian’s TechScape newsletter explains all. Esther
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Weddings can be extremely expensive and stressful affairs. In the Atlantic (£) Xochitl Gonzalez writes about her experiences as a luxury wedding planner: strap in for on-site calligraphers and “concierge event meteorologists” to keep rain at bay. Nimo
Sport
View image in fullscreenAustralia’s Pat Cummins shows his delight at victory while Ben Stokes, his England counterpart, is left wondering what might have been. Photograph: Geoff Caddick/AFP/Getty Images
Cricket | Ben Stokes declared himself “devastated” and proud after England lost the first Ashes Test by two wickets at the end of a thrilling final day of wildly careering fortunes. England were within sight of victory before Australia captain Pat Cummins (above left, with Stokes) and Nathan Lyon put together an unbeaten partnership of 55 to change the course of the game.
Football | West Ham have rejected a second, £90m bid from Arsenal for midfielder Declan Rice, adding that it will take a minimum of £100m to do a deal. Arsenal had an initial £80m offer rejected last week, and remain confident of signing the England player – but Manchester City are lurking.
Football | Players were placed “at risk” during qualifiers for the Women’s World Cup by a lack of medical support and substandard working conditions, according to the global players’ union. A report by Fifpro took an in-depth look at an often fragmented – and badly scheduled – qualification process and reached a damning conclusion.
The front pages
View image in fullscreenGuardian front page, Wednesday 21 June 2023 Photograph: Guardian
“‘Mortgage timebomb’ bailout calls split Tories” is the Guardian print edition’s lead story for Wednesday. The i says “Tories face UK mortgage time bomb as Bank urged to make big rate hike”, while the Financial Times has “Hunt summons banks for mortgage talks but rules out aid to homeowners”. “Lockdown damaged a generation, says ex-CMO” – that’s the Daily Telegraph. “Titanic sub: last photo” – the Metro shows the Titan submersible on a pontoon before it set out. “I was booked on doomed Titanic sub” is the Sun’s angle. “24 hours to save them” says the Daily Mail which runs portrait shots of those on board. The Daily Mirror and Daily Express both report that their families are “Praying for a miracle”, while the Times reports on “Previous safety worries over missing Titanic sub”, about which much has emerged in a short space of time.
Today in Focus
View image in fullscreen Photograph: Robin Loznak/ZUMA Press Wire/Shutterstock
Held v Montana: the young people fighting for the climate in court
Dharna Noor reports on the 16 young people taking on the state of Montana in a historic climate case. What could it mean if the plaintiffs are successful?
Cartoon of the day | Nicola Jennings
View image in fullscreen Illustration: Nicola Jennings/The Guardian
The Upside
A bit of good news to remind you that the world’s not all bad
View image in fullscreenNew Geoje Haenyeo freediving recruits in South Korea. Photograph: Louise Krüger
The haenyeo are a tribe of South Korean female freedivers whose livelihoods are dependent on gathering oysters, seashells and other marine life by hand. More than half of the North Gyeongsang region’s divers are more than 70 years old (9.2% were aged 80 years or more). For a long time they were the only people preserving the ancient but soon-to-vanish tradition. That was until a wave of new recruits joined their ranks, after Unesco added them to the intangible cultural heritage list, which recognises and protects practices and communities from around the world.
The community of divers realised that if freediving culture was to survive, potential recruits needed a place to learn. And so the Geoje Haenyeo academy was born, making it possible for women who weren’t born into the practice to access the community and learn its skills. So far, the academy has had more than 100 graduates, with 15 women going on to become full-time divers. Shin Ho-jin, a new recruit, says: “The older freedivers know the cycle of mother nature and follow the rules to keep it alive as they can. I hope their story and spirit can be passed on.”
Sign up here for a weekly roundup of The Upside, sent to you every Sunday
Bored at work?
And finally, the Guardian’s puzzles are here to keep you entertained throughout the day – with plenty more on the Guardian’s Puzzles app for iOS and Android. Until tomorrow.
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