Mortgage rates: The two-year fix continues to rise to 6.53% despite the government’s vagaries

The average fixed rate for a two-year fixed-rate mortgage across all loans-to-value rose to 6.53 per cent, a day after new chancellor Jeremy Hunt returned much of the government’s tax cut package.

The average rate for five-year fixed deals also rose to 6.36 percent, although it declined slightly to below 6.30 percent at the end of last week, according to financial information service Moneyfacts.

Separately, NatWest raised mortgage rates for the second time in just over a week, pushing all of its fixed rates over 6 percent.

The last time the average two-year fixed mortgage was 6.4 percent or more was in August 2008 during the fallout from the global financial meltdown when it reached 6.94 percent.

Increased interest: The price of fixed-rate deals has continued to rise since the end of last year, but this has accelerated since the government's mini-budget.

Increased interest: The price of fixed-rate deals has continued to rise since the end of last year, but this has accelerated since the government’s mini-budget.

Hunt’s announcements, including halting the average energy bill of £2,500 in April, were made in an attempt to appease markets after selling off government bonds – government debt – and the rising cost of borrowing.

This is transferred through the lenders to the homeowners by increasing mortgage rates.

These increases will cost borrowers thousands more annually to pay for their homes. The average two-year fixed deal rate across all deposit sizes is up 1.79 percent from the mini-balance day to date, according to Moneyfacts.

The increase adds £215 a month to the cost of a £200,000 mortgage, or £2,508 a year.

Why are mortgage rates still going up?

Today’s rates seem to show that the cornering effect has not yet filtered through to the mortgage market.

This is despite brokers suggesting that the cost of borrowing to banks and building societies is already getting cheaper.

Lenders may be struggling to deal with the level of customer inquiries they receive due to the uncertainty in the market, not wanting to put more pressure on their services by lowering rates and becoming the cheapest in the market.

Chris Sykes, technical director at broker Private Finance, said: “Since Kwasi was fired last week, institutional lending rates have fallen, so it will come as a surprise to some that in some cases mortgage providers are still raising rates.

“By talking to the lenders, it’s not necessarily because of the political uncertainty or the cost of financing anymore. Service levels are now being extended and they want to stem demand by driving rates higher than their competitors.

Money Facts rates are averages and are not the cheapest deals on the market. These can be seen below.

Cheapest mortgage rates for home purchases in the past year
limited period Deposit Best price Oct 18 21 Best price Oct 14 22 % difference Payment difference on a £150,000 loan
Two years 40% 1.07% 5.64% 4.57% £366.99
25% 1.19% 5.69% 4.50% £362.99
10% 1.99% 5.89% 3.90% £324.46
5% 2.79% 6.24% 3.45% £293.54
five years 40% 0.98% 5.34% 4.36% £342.12
25% 1.22% 5.39% 4.17% £333.91
10% 2.50% 5.54% 3.04% £252.59
5% 2.99% 5.89% 2.90% £241.12
Source: Defaqto
Cheapest purchase prices: the mini budget yet
limited period Deposit Best price 22 sep 22 Best price Oct 13 22 % difference Payment difference on a £150,000 loan
Two years 40% 4.06% 5.64% 1.58% £137.43
25% 4.06% 5.69% 1.63% £141.96
10% 3.49% 5.89% 2.40% £204.39
5% 3.99% 6.24% 2.25% £196.60
five years 40% 3.82% 5.34% 1.52% £130.35
25% 3.86% 5.39% 1.53% £131.53
10% 3.98% 5.54% 1.56% £135.06
5% 4.09% 6.24% 1.80% £156.10
Source: Defaqto

What are NatWest rates now?

Having already raised their rates on October 10th, NatWest has now pulled some of those products and revealed a new batch of mortgages launching today.

The bank’s cheapest rate, a fixed five-year deal available only to existing customers with a 40 percent deposit, jumped 0.8 percent from 5.24 percent to 6.04 percent.

On a £200,000 mortgage, this increases the monthly payments by £96 from £1,197 to £1,293, which equates to £1,152 a year.

For first time buyers looking for small deposit mortgages the increase in interest rates is less obvious but still significant.

just chill?  Some brokers say that the pace of mortgage rate change may start to slow soon

just chill? Some brokers say that the pace of mortgage rate change may start to slow soon

A two-year fixed deal with a 10 percent deposit for a new mortgage jumped 0.4 percent to 6.54 percent.

This means those who made a deal with NatWest just a week ago would save £49 a month or £588 a year.

For the same terms on a five-year fixed rate, the rate jumped 0.75 per cent to 6.39 per cent, adding an extra £92 to monthly mortgage payments, or £1,104 per year.

Those needing a new mortgage can access updated rates based on their specific circumstances using the This is Money mortgage calculator.

Where will prices go next?

With the economic backdrop changing rapidly, it’s hard to tell. However, some brokers expect things to become much calmer in the coming weeks — at least when it comes to mortgage rate changes.

The next BoE base rate increase has already been priced in, and this could delay any further changes from the lenders

‘In the short term, I don’t really expect to see much change,’ said Craig Fish, founder and director of Lodestone Mortgages & Protection, despite a couple of lenders increasing interest rates in recent days.

“I think the next BoE base rate increase is already set, and that may delay any further changes from the lenders.”

The next meeting of the bank to decide whether to raise the base rate will be held on November 3.

Barclays also put up prices for new products, with its five-year fixed-rate mortgage on a 40 percent deposit of 6 percent for new business.

It also has a seven-year 6 percent fix for existing customers with a 40 percent deposit being transferred to a new deal.

What to do if you need a mortgage

Borrowers who need to find a mortgage because their existing fixed-rate deal is coming to an end, or because they’ve agreed to buy a home, are urged to act but not panic..

Banks and building societies are still lending and mortgages are still being accepted with applications accepted.

However, rates change quickly, and there is no guarantee that deals will stick and won’t be replaced by mortgages that charge higher rates.

This is Money’s best mortgage rate calculator powered by L&C that can show you deals that match the value of your mortgage and property.

What if I need to re-travel?

Borrowers should compare rates, talk to a mortgage broker, and be prepared to work to secure a rate.

Anyone with a fixed-rate deal that expires within the next six to nine months should consider how much a remortgage will cost now — and consider a new deal.

Most mortgage deals allow a fee to be added to the loan and then only charged when you take it out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I’m buying a house?

Those who have agreed to buy homes should also aim to lock in prices as early as possible, so they know exactly what their monthly payments will be.

Homebuyers should beware of overexerting themselves and be prepared for the possibility of home prices falling from their current high levels, due to high mortgage rates limiting people’s ability to borrow.

How to compare mortgage costs

The best way to compare mortgage costs and find the right deal for you is to talk to a good broker.

You can use our best mortgage rates calculator to show matching deals for your home value, mortgage size, term needs and flat rates.

Be aware that rates can change quickly, so the advice is that if you need a mortgage to compare rates then speak to a broker as soon as possible, so they can help you find the right mortgage for you.

> Check out the best fixed rate mortgages you can apply for

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