The average two-year fixed mortgage rate tops 4% for the first time in nearly a decade

Typical two-year fixed mortgage rate tops 4% for first time in nearly a decade as inflation continues to rise

  • The average 2-year fixed mortgage is at 4.09% according to Moneyfacts
  • A five-year fixed mortgage has also risen from 2.75% to 4.24% in just one year
  • The Bank of England raised the base rate to 1.75% on August 4
  • Rates are expected to continue to rise as the Bank tackles runaway inflation

The average interest rate on a two-year fixed mortgage topped 4 percent for the first time in nearly a decade, following the Bank of England’s latest base rate hike.

An average two-year fixed-rate mortgage is now at 4.09 percent, according to Moneyfacts: 62.3 percent more expensive than in the same period last year when it was 2.52 percent.

It is the first time that the rate has exceeded 4 percent since February 2013, when it reached 4.09 percent.

The rate goes up: The average 2-year fixed mortgage rate has risen 1.75% since December 2021 when it stood at 2.34%

A typical five-year fixed mortgage, now a more popular option as buyers seek protection from further rate hikes, has risen from 2.75% last August to 4.24% today.

Mortgage rates have been rising since December 2021 when the Bank of England began raising the base rate in a bid to combat skyrocketing inflation.

More than three-quarters (76 percent) of borrowers have a fixed rate, so the pain of higher rates will slowly seep in as they finalize their deals and remortgage.

Eleanor Williams, finance expert at Moneyfacts, said: ‘Since the beginning of this month, the overall two-year average fixed rate has already risen 0.14 per cent and has now reached 4.09 per cent.

In December 2021, this rate stood at 2.34%, so it has increased by 1.75% since then, 0.10% more than the base rate has increased over the same period.

“The overall five-year fixed average has risen 0.16 percent from the first of this month to 4.24 percent, an increase of 1.60 percent compared to December 2021 (2.64 percent) “.

Using March 2022 UK house price data on the average London property (approximately £523,000) and a loan of approximately 75% of the mortgage value (approximately £392,000), the monthly costs for a mortgage on the average 2-year fixed deal would have increased by £600 a month compared to two years ago.

This would result in a higher interest cost of nearly £14,500 over the life of the mortgage.

Those with standard variable rate mortgages can see their rate increased when the lender chooses, and these have been moving along with the base.

Chris Sykes, CTO of Private Finance, said: “In real terms, the average numbers will take into account things like bad credit lenders and very high loan-to-value products, but the average tells a similar story to best buys. in the market.

“This is leading people to take steps like putting some of the debt into interest only or extending the term of their mortgage, which can further increase the level of interest paid on the mortgage over time, unless overpayments are made.

“Others are drawing funds from investments or savings to overpay/pay off their mortgage to have less of an effect on monthly cash flow.”

Earlier this month, the Bank of England raised its base interest rate by 0.5 percent, the biggest single increase in 27 years.

It is the last in a series of climbs. The base rate has risen from 0.1 percent in December to 1.75 percent now, and the Bank’s Monetary Policy Committee has signaled that it is willing to go further to tackle runaway inflation.

Forecast: Citi says CPI inflation will peak at 18% early next year and stay in double digits for most of 2023

Forecast: Citi says CPI inflation will peak at 18% early next year and stay in double digits for most of 2023

The UK inflation rate will hit its highest in nearly 50 years of 18 percent early next year and energy prices will soar, investment bank Citi has warned.

A 3 percent base rate could lead to five-year fixed mortgages averaging 4.75 percent.

Two years ago during the pandemic, mortgages hit record lows of just 0.89% while the housing market was booming.

As of September 2020, the average two-year fixed rate was 2.24%, 82.5% lower than today, according to MoneyFacts.

To help our readers find the best mortgage, This is Money has partnered with independent broker L&C.

Our L&C-powered mortgage calculator can allow you to filter offers to see which ones are best for you.

The best mortgage rates and how to find them

Mortgage rates have risen substantially as the Bank of England base rate has risen rapidly.

If you’re thinking about buying your first home, moving or remortgaging, or are a buy-to-let landlord, it’s important to get good, independent mortgage advice from a broker who can help you find the best deal.

To help our readers find the best mortgage, This is Money has partnered with independent broker L&C.

Our L&C-powered mortgage calculator can allow you to filter offers to see which ones best match your home value and deposit level.

You can also compare different fixed-rate mortgage durations, from two-year arrangements to five-year arrangements to ten-year arrangements, with monthly and total costs displayed.

Use the tool at the link below to compare the best deals, taking both fees and rates into account. You can also start an online application on your own time and save it as you go.

> Compare the best mortgage deals available now

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