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

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

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

This is the first time that the price has breached 4 percent since February 2013 when it reached 4.09 percent.

A five-year fixed-term mortgage – now a more popular option as buyers seek to protect themselves from rising interest rates – has risen from 2.75 per cent last August to 4.24 per cent today.

Mortgage rates have been rising since December 2021 when the Bank of England began raising the base rate in an effort to combat spiraling inflation.

More than three-quarters (76 percent) of borrowers rely on a fixed rate — so the pain of higher rates will slowly pass away as their deals expire and remortgage.

Eleanor Williams, financial expert at Moneyfacts, said: “Since the beginning of this month, the two-year average fixed total rate has already increased by 0.14 per cent and is now at 4.09 per cent.

In December 2021, that rate stood at 2.34 percent, so it’s increased 1.75 percent since then, and 0.10 percent higher than the base rate over the same period.

“The five-year total constant rate increased by 0.16 percent since the first of this month to 4.24 percent, an increase of 1.60 percent compared to December 2021 (2.64 percent).

Using UK house price data for March 2022 for average London property (around £523,000) and around 75% loan to value mortgage (around £392,000), the monthly costs of a mortgage on average A two-year fixed-term deal would be £600 a month more than two years ago.

This will increase the cost of interest by approximately £14,500 over the life of the mortgage.

Those on standard variable rate mortgages can see their rate increase whenever the lender chooses and those have been going up along with the base.

“In real terms, the average numbers will take into account things like adverse credit lenders and very high loan for value products, but average tells a similar story to that of World’s Best Buy,” said Chris Sykes, technical director at Private Finance. Market.

This leads to people taking measures such as putting some debt on interest only or extending the term of their mortgage which can increase the level of interest paid on the mortgage over time unless an overpayment is made.

“Others withdraw money from investments or savings to overpay / pay off their mortgages so that it has less of an impact on their monthly cash flow.”

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

It is the latest in a series of highs. The core rate rose from 0.1 percent in December to 1.75 percent now, and the bank’s Monetary Policy Committee has signaled it is ready to move forward in order to tackle spiraling inflation.

Investment bank Citi has warned that UK inflation is set to peak at a 50-year high of 18 per cent early next year as energy prices are expected to rise.

A base rate of 3 percent could see five-year fixed rate mortgages averaging 4.75 percent.

Two years ago, during the pandemic, mortgages hit an historic low of 0.89 percent, as the housing market boomed.

In September 2020, the two-year average constant rate was 2.24 percent — 82.5 percent lower than today, according to MoneyFacts.

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