Fixed rate mortgages are up 166% year-to-date due to higher prime rates

Average two-year fixed mortgage rates are now two percentage points higher than they were at the start of the year, boosting usual monthly payments by an average of £159.

The average two-year home loan rose to 3.46 percent, while a five-year repair rose to 3.5 percent, according to an analysis from L&C Mortgages.

The same figures in January were 1.3 percent and 1.55 percent, respectively. In two years, that’s an increase of 166 percent.

A borrower taking out a typical £150,000 mortgage over 25 years at an average rate of two years would face monthly payments of over £159 compared to the start of the year. This is an annual increase of over £1,900 compared to January.

The Bank of England is expected to raise interest rates from 1.25 percent to 1.75 percent later today and will do nothing to assuage borrowers’ concerns.

The core rate rose from 0.1% in November to 1.25%. Lenders typically pass these hikes on to their clients.

If it rises as expected, it will be at its highest level since 2008 when the central bank cut interest rates dramatically amid the global financial meltdown.

The rise in the base rate is an attempt by the Bank to tackle inflation which is now expected to reach 15 percent by the end of the year,

In addition to new borrowers, higher interest rates are set to hit homeowners looking to remortgage.

Two years ago, at the start of August 2020, borrowers could have received a two-year interest rate with Coventry Building Society at 1.3 per cent interest at 75 per cent LTV, plus a fee as low as £999.

If we take a mortgage of £225,000 over £300,000 over 25 years in this deal, they would have monthly payments of £878.87.

If they now remortgage into the top ten at a two year average of 3.46 per cent, the monthly payments on the remaining £209,566 balance over the remaining 23 years would be £1,102.11 a month, £223 higher than their original deal .

David Hollingworth, associate principal at L&C Mortgages, said, “The mortgage landscape continues to shift rapidly as lenders balance volatile financing conditions and service levels, forcing frequent changes to mortgage products.

As a result, subprime borrowers face higher payments, both as a result of the principal rate increase and as the protection of their existing fixed deal expires.

As borrowers prepare for another base rate hike this week, many are unsurprisingly seeking fixed-rate shelter.

“This provides monthly savings as well as a secure payment build-up for families already feeling pinched by further increases in the cost of living.”

Aware of the risks, Hollingworth notes that many borrowers shop around for a new deal as soon as possible in order to lock in lower rates.

And lenders are responding. Homeowners can check how much they’ll have to pay to fix it now with the Best Money Mortgage Rate Comparison Calculator created with partner L&C.

Lenders are extending the maximum term for moving products in an effort to retain existing customers, says Raymond Bolger, chief technical director of mortgages at John Charcol.

This means that for borrowers looking to remortgage, their provider may allow them to sign a new deal earlier than their agreement limit — traditionally three to four months before the end of the plan — enabling them to lock in a lower interest rate before the expected future rises.

It is convenient that many lenders nowadays have lower product conversion rates than the rates they offer for new business.

“It is less expensive to retain customers than to attract a new one, and particularly at a time when many lenders’ service levels are suboptimal, there is a strong incentive to retain existing customers rather than having to replace them with new ones, which is a lot more time consuming.” “.

Others warn that lenders are also updating the rates they offer with alarming speed.

Ashley Thomas, Director, Mortgage Broker, Magni Finance, said: “Now, lenders are increasing rates and withdrawing existing products a lot faster.

Where they used to give us at least a day’s notice, this is now reduced to a few hours in some cases.

For example, a lender sent an email yesterday at 4.30pm saying that they were changing their current rates by the end of the day.

“This makes it very difficult to get a mortgage, so I would advise people to move as soon as possible.”

Other brokers, including Bulger, have reported a significant slowdown in the time it takes banks to process applications as they become inundated with applications from borrowers trying to get ahead of future interest rate increases.

He says this has been the case for several weeks.

The cautionary tale will usually be very good and competitively priced Nationwide who currently only take nine business days to verify a payment receipt or appraisal report, says Rhys Scofield, managing director of mortgage company Peak Money.

“This is so pervasive right now that lenders are simply struggling to keep pace and the only way they can turn off the taps is by changing rates.”

Nationwide said: “Our current average schedules are what we would expect given the high demand we’re seeing in the market.

“We update the timetables on our website on a daily basis so everyone has an updated overview of how long their application may take.”

Bolger adds that government bonds — fixed-income government bonds that are particularly sensitive to interest rate changes — have had a choppy few months, with swings in both directions.

The impressive 10-year yield peaked at 2.62 percent 6 weeks ago and at the time of writing is 0.7 percentage points lower at 1.92 percent.

“The fact that many lenders are struggling with servicing means they have little incentive to lower rates to reflect the decline in financing costs, as the increase in business that a lender might see from making itself more competitive will simply exacerbate servicing problems,” he says.