Two-year fixed mortgage rates top 6% as home loans hit highest prices since 2008
- The price of a £200,000 mortgage has increased by £1,896 a year since the mini-Budget
- The typical two-year fix now has 6.07% interest, according to Moneyfacts
- Meanwhile, the 5-year average fixed rate offer is now £5.97%
- Brokers Warn Borrowing Costs Will Hit Demand and Push House Prices Down
The average two-year fixed mortgage rate has reached 6.07 percent, the highest interest level in 14 years.
Five-year fixed rates have also risen with interest now averaging 5.97 percent, according to analysts at Moneyfacts.
It’s part of the fallout from the Chancellor’s mini-budget less than two weeks ago, which caused fresh uncertainty in the UK economy by announcing a series of tax cuts, some of which have since been reversed.
The two-year average fixed rate rose 1.33 percent in the 13 days after, while the five-year average fixed rate rose 1.22 percent.
Interest Rising: The cost of borrowing has risen steadily since December last year, but accelerated after the Chancellor’s mini-budget on September 23.
In cash terms, the impact on borrowers looking for a new mortgage is severe. For a £200,000 mortgage, the cost of borrowing on a new two-year fixed offer increased by £158 per month, or £1,896 per year, in less than two weeks.
The rise is even steeper compared to December last year, before the Bank of England started raising its base rate.
On December 1, the rate for an average two-year settlement was just 2.34 percent. At that rate, a £200,000 mortgage costs just £881 a month, but today it would cost £1,297.
Mortgage rates have been rising steadily since December, when the Bank of England began raising its base rate from 0.1 percent in a bid to cope with rising inflation. After successive increases, it now stands at 2.25%.
The pace of mortgage rate hikes accelerated over the summer as the central bank continued its trajectory. On September 1, the average two-year fixed rate was 4.24 percent, and the five-year fixed rate was 4.33 percent, according to Moneyfacts.
At the end of the month (September 30), these had risen to 5.17 percent and 5.10 percent, respectively.
This means that someone who took a two-year fixed mortgage at the end of September will, on average, pay £107 more a month, or £1,285 more a year, on a £200,000 mortgage than someone who took one early on.
Rachel Springall, Finance Expert at MoneyFacts, said: “Borrowers may be concerned about rising fixed mortgage rates, but it’s essential that they seek advice to assess the deals that are available to them right now.”
‘The drop in product availability may be concerning, but many lenders have emphasized that their draws are temporary amid interest rate uncertainty.
‘Longer fixing may seem more attractive, particularly as average two-year and five-year fixed rates rise to levels not seen in more than a decade. Consumers should carefully consider whether now is the right time to buy a home or wait and see how things change in the coming weeks.”
Homeowners can check what rates they could get for their mortgage size and home equity during different fixed rate periods using This is Money’s best mortgage rate calculator.
There are very few winners in these uncertain times. Clearly, rates must be controlled.
Joshua Raymond, director of financial brokerage XTB, said: “The lack of products available as mortgage providers assess the debt market along with high rate expectations are the two key factors driving the two-year average mortgage rate to more than six percent.
“What we will likely see is borrowers move into longer-term deals, but we expect those rates to come under upward pressure as well, so borrowers are likely to face higher mortgage costs regardless of whether they are renewing deals at short or long term.
Others point out that despite the government’s stamp duty cut in its mini-budget, the rising cost of borrowing will reduce demand for home buying.
James Miles, Principal and Mortgage Consultant at The Mortgage Quarter broker added: ‘I have had three clients decide not to move into their next home because they are concerned about the increasing pressure on their household expenses.
‘This will surely reduce demand and level out house prices. There are very few winners in these uncertain times. Clearly fees need to be reined in and the government needs to show some leadership as payments are becoming unaffordable.”
What to do if you need a mortgage
Borrowers who need to find a mortgage because their current fixed-rate agreement is coming to an end, or because they have agreed to purchase a home, have been urged to act but not panic. writes This is Money editor Simon Lambert.
Banks and building societies continue to lend and mortgages are still being offered and applications accepted.
However, rates are changing rapidly and there is no guarantee that the deals will last and not be replaced by mortgages that charge higher rates.
This is the best Money Mortgage Rate Calculator powered by L&C that can show you offers that match the value of your mortgage and property
What if I need to re-mortgage?
Borrowers should shop around and talk to a mortgage broker and be prepared to act to secure a rate.
Anyone with a fixed-rate agreement ending within the next six to nine months should consider how much it would cost to remortgage now and consider closing a new agreement.
Most mortgage deals allow fees to be added to the loan and are then only charged when you withdraw. By doing this, borrowers can lock in a rate without paying expensive setup fees.
What if I am buying a house?
Those with agreed home purchases should also aim to lock in rates as soon as possible, so they know exactly what their monthly payments will be.
Homebuyers should be careful not to overstretch themselves and be prepared for the possibility of house prices falling from their current high levels, due to higher mortgage rates limiting people’s borrowing capacity.
How to Compare Mortgage Costs
The best way to compare mortgage costs and find the deal that’s right for you is to talk to a good broker.
This is Money’s mortgage broker partner, L&C, he told me the mortgages are still available and you can use our best mortgage rate calculator to show you offers that match your home value, mortgage size, term and fixed rate needs.
Keep in mind, however, that rates can change quickly, so the advice is if you need a mortgage, compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you. .
> Consult the best fixed-rate mortgages that you could apply for