UK mortgage rates have surged as market expectations of the path of Bank Rate have moved higher. 

But the huge shift in the UK mortgage market towards fixed rate mortgages has slowed the transmission of monetary policy to existing mortgages.

Indeed, only around one-third of the impact of tighter monetary policy has so far been felt by the economy.

The large stock of mortgages due to be refinanced in the coming months will mean a big increase in economy-wide mortgage servicing costs. We think this will tip the economy into recession by Q4 this year.

The key risk to this forecast is that the government introduces significant mortgage market interventions well beyond the scope of the recently announced “Mortgage Charter”. This would cause interest rates to stay higher for longer.

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