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Highlights
- Interest rate hikes may put pressure on homeowners over the next one year with about 40% of mortgages going up.
- Interest rate hikes will immediately impact 20% of the mortgages as they are floating.
- UK mortgage borrowers paid a standard variable rate (SVR) of 5.06% on average at the start of July, as per Moneyfacts.
As the cost-of-living crisis is escalating, the Bank of England (BoE) has been pitching for monetary policy tightening. To counter the impact of rising inflation, the BoE’s Monetary Policy Committee (MPC) has been consistently increasing the interest rates. However, these rate hikes are bound to put more pressure on homeowners over the next one year with about 40% of mortgages going up.
As per BoE’s estimates, inflation levels in the UK are expected to rise to 11% by October, up from the current 40-year high of 9.1%. The interest rate has been recently raised to a 13-year high of 1.25% and is expected to surge further over the coming months.
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Interest rate hikes are expected to immediately impact 20% of the mortgages as they are floating. Over the next one year, around one-fourth of the rest, 80% of fixed mortgages will come to an end. Thus, only 40% of total mortgages would actually witness higher interest rates in the immediate period to come. With the ending of more fixed-rate mortgages, the impact of interest rate hikes may be passed on to the year ahead.
As per Moneyfacts, a leading provider of financial data, UK mortgage borrowers paid a standard variable rate (SVR) of 5.06% on average at the start of July, which is the greatest SVR level reached since the beginning of 2009. Nevertheless, BoE claims that even though UK households would face increased mortgage payments, the situation won’t be as bad as the global financial crisis of 2008.
Amid the rising mortgage rates, let’s explore mortgage stocks to keep a tab on.
Lloyds Banking Group plc (LON: LLOY)
Lloyds Banking Group which offers an array of mortgage services on 12 July boasted of a market cap of £28,880.32m. The FTSE 100 bank’s shares on Tuesday were trading at GBX 41.74 and it was down by 0.67% as the market opened at around 8:00 AM (GMT+1). The bank currently offers its investors an annual dividend yield of 4.8%. The P/E ratio of the bank stood at 5.63% with a positive EPS of 0.08. The bank’s performance has deteriorated over the past 12 months with its yearly return in the negative territory at -10.67%, and YTD return at -12.71%. Lloyds Banking Group plc’s shares were down by 0.67% on 12 July, at GBX 41.74.
OSB Group plc (LON: OSB)
OSB Group plc is a prominent company specialising in mortgage lending, and it principally focuses on some particular sub-segments of the mortgage market. The FTSE 250 constituent has a market cap of £2,132.42m as of 12 July and is currently providing its investors with an annual dividend yield of 5.4%. The P/E ratio of OSB stood at 6.43%, along with a positive EPS of 0.43. As of 12 July, OSB’s annual return lies in the positive territory at 2.31%, but its YTD return has dropped to -12.06%. OSB Group plc’s shares were witnessing a good outing today as it was up 0.83% and its shares were trading at GBX 487.60 at around 8:00 AM (GMT+1).
HSBC Holdings plc (LON: HSBA)
HSBC Holdings plc offers its customers home financing and mortgage refinancing options. The FTSE 100 bank has a market cap of £105,679.84m as of 12 July and is currently providing its investors with an annual dividend yield of 4.1%. The bank has performed quite well over the past 12 months with both its annual and YTD returns in the positive territory as of 12 July, at 27.36% and 17.64%. HSBA was witnessing a fall as it was down by 0.08% as the market opened at around 8:00 AM (GMT+1). HSBC Holdings plc’s shares on Tuesday were trading at GBX 527.30.
