Mortgage rates: Flat rates up at the fastest rate in 15 years

Average mortgage rates jumped 0.5 percentage points in one month, as interest on home loans reached highs not seen since the middle of 2010.

According to Moneyfacts, five-year fixed-rate deals now average 3.89 percent, up 0.52 percentage points from June and the highest interest since November 2014.

This means someone taking out a £300,000 mortgage today could pay £84 more per month than someone who closed in on their rate in June.

And homeowners nearing the end of fixed deals can be hit with higher monthly bills when they come to remortgage, especially if they haven’t accumulated enough equity in their homes to bring the loan up to value and secure a cheaper rate.

In 2017, the five-year average of flat rates was just 2.85 percent, 1.04 percentage points lower than today.

The average monthly payment on a five-year £300,000 fixed-rate mortgage for 25 years in 2017 would have been £1,399, but someone taking out the same mortgage today would pay an extra £166 each month at a rate of 1,565 pounds sterling.

The total interest they will pay over the specified term will rise by nearly £10,000, from £83,960 five years ago to £93,921 now.

Meanwhile, the average two-year fixed-rate mortgage rose to its highest level since 2013 this month.

The usual rate is now 3.74 percent, up 0.49 percentage points compared to June, according to Moneyfacts.

This time in 2021, the two-year average for repairs was 2.55 percent and the five-year average at 2.78 percent, 1.19 and 1.11 percentage points below today’s rates respectively.

‘After exiting a deal now, clients will often get a higher interest rate than they have been used to paying for years,’ said Chris Skyes, technical director at private finance real estate.

“The only situations I’ve seen recently where I get the customer at a better rate are where they were 95 percent loan-to-value originally and they’re now at a much lower loan in value, so they’re taking advantage of that, or where they had very special circumstances before, like Adverse credit, or very complex income, so they had to go with a specialist lender and can now go to one of the regular ones.

While he suggests other ways to make savings on your mortgage, including extending the term of the deal or putting an amount on interest only, he warns that these may cost more in the long run.

“My honest financial recommendation is to stick to the payments if you can,” Sykes said.

Benchmark variable rates also rose, according to Moneyfacts, crossing 5 percent for the first time in 13 years.

Having risen by 0.15 percent this month, the average SVR now stands at 5.06 percent, up 0.66 percentage points since December 2021 when it was at 4.4 percent.

The increases will not cause widespread financial distress

Despite these increases, and the ongoing cost-of-living crisis, Andrew Wishart, chief real estate economist at Capital Economics, says it’s unlikely we’ll see remortgages driving a significant number of homeowners into financial distress.

This view is supported by the Bank of England. Even after adjusting for higher costs of living and interest rates, it said in its July Financial Stability Report, the share of households with very high debt servicing costs would still be well below financial crisis levels.

According to Wishart’s numbers, the hardest hit will be those who reach the end of the two-year reform in September 2023.

Based on a 25 per cent secured mortgage against the average home, expect to pay monthly payments from £719 to £882.

Why are prices rising and what should you do?

Fixed mortgage rates often rise and fall in a similar pattern to the Bank of England’s base rate, which has been gradually increased since December in an effort to curb inflation, but they are also affected by other factors.

‘There are many factors that influence fixed rate pricing, rather than just tracking the BoE base rate,’ said Eleanor Williams, finance expert at Moneyfacts.

Service providers take into account several influences, such as financing, swap rates, pricing pressures from other service providers, and the ability to maintain their service levels, among others.

Having said that, it is interesting to note that between December 2021 and July 2022, the base rate increased from 0.10 percent to 1.25 percent – an increase of 1.15 percent in total.

Last month, the Bank of England raised its base rate to 1.25 percent, the fifth increase in six months.

At the time, the cheapest two- and five-year fixed-rate mortgage deals charged upwards of 2.5 percent.

“It’s more important than ever for borrowers to keep their mortgage in check, especially since other home costs are also on the rise,” advised David Hollingworth of L&C Realtor.

Those who are currently at a minimum fixed rate will be protected from the price hike that is currently being fueled but should look forward to when the current deal expires.

Rates can be locked up to six months in advance, so in the current market it may be advantageous for borrowers to start their review sooner, which can enable them to move forward with any further rate increases.

They should make sure that any zoning fees are calculated on the title rate only. Most lenders offer a range of options that can help with costs and fees that for some will be more cost effective, though at a slightly higher rate.

Those who managed to hold on to one of the ultra-low rates last year might want to consider whether they could make the most of this deal by overpaying a bit.

Most deals will allow overpayments of up to 10 percent annually without incurring any early payment fees, and while that’s easier said than done, it can give the opportunity to reduce the mortgage while the rate remains lower, which will help them prepare for the possibility of a higher rate environment.