Two-year fixed mortgage rates exceed 6% as home loans reach their highest rates since 2008

Two-year fixed mortgage rates exceed 6% as housing loans reach their highest rates since 2008

  • The £200,000 mortgage has gone up by £1,896 a year since the mini budget
  • According to Moneyfacts, the typical two-year repair interest is now 6.07%
  • Meanwhile, the average price of a 5-year fixed deal now costs £5.97%.
  • Brokers warn that the cost of borrowing will hurt demand and drive down house prices

The average two-year fixed rate mortgage was 6.07 percent, the highest interest level in 14 years.

Five-year fixed rates have also increased with interest now averaging 5.97 percent, according to analysts at Moneyfacts.

It is part of the fallout from the Chancellor’s mini-budget less than two weeks ago, which sparked new uncertainty in the UK economy by announcing a series of tax cuts – some of which have since been reversed.

The two-year average fixed rate has increased by 1.33 percent in the 13 days since then, while the five-year average fixed rate has increased by 1.22 percent.

Interest hike: The cost of borrowing has increased steadily since December last year, but has accelerated in the wake of the Chancellor's micro-budget on September 23

Interest hike: The cost of borrowing has increased steadily since December last year, but has accelerated in the wake of the Chancellor’s micro-budget on September 23

Monetarily speaking, the impact on borrowers seeking a new mortgage is severe. For a £200,000 mortgage, the cost of borrowing on a new two-year fixed deal has increased by £158 a month, or £1,896 a year, in less than two weeks.

The rise is sharper compared to December last year, before the Bank of England started raising the key interest rate.

On December 1, the two-year repair rate was just 2.34 percent. At this rate, a £200,000 mortgage would only cost £881 a month, but today it would cost £1,297.

Mortgage rates have risen steadily since December when the Bank of England started raising its base rate from 0.1 per cent in a bid to tackle rising inflation. After consecutive hikes, it is now at 2.25 percent.

The pace of the mortgage rate hike accelerated over the summer as the central bank continued its course. On Sept. 1, the average two-year fixed rate was 4.24 percent, and the five-year fixed rate was 4.33 percent, according to Moneyfacts.

By the end of the month (September 30), this percentage had increased to 5.17 percent and 5.10 percent, respectively.

This means that someone who took out a two-year fixed-term mortgage at the end of September would, on average, pay an extra £107 a month, or an extra £1,285 a year, on a £200,000 mortgage than someone who took On a mortgage initially.

Rachel Springol, financial expert at MoneyFacts, said: “Borrowers may be concerned about rising fixed-rate mortgages, but it is essential that they seek advice to evaluate the deals available to them at the moment.

The decline in product availability could be concerning but many lenders have been vocal in stressing that their withdrawals are temporary amid uncertainty about interest rates.

A longer term fix would seem more attractive, especially as both the two-year and five-year average flat rates are rising to levels not seen in over a decade. Consumers need to think carefully about whether now is a good time to buy a home or wait and see how things change in the coming weeks.

Homeowners can check what rates they can get for their mortgage size and home value over different fixed rate periods using Money’s best mortgage rates calculator.

There are very few winners in these uncertain times. Obviously, rates need to be controlled

“The lack of products available while mortgage providers assess the debt market combined with expectations of higher interest rates are the two main factors driving the average two-year mortgage rate over six in the region,” said Joshua Raymond, director at brokerage XTB. Cent.

What we’ll likely see is borrowers moving into longer-term deals, but we expect those rates to also see upward pressure, so borrowers will likely face higher mortgage costs regardless of whether they renew into short-term or long-term deals.

Others point out that although the government has cut stamp duty in its mini-budget, the higher cost of borrowing will dampen home-buying demand.

James Miles, director and mortgage advisor at brokerage firm The Mortgage Quarter, added: ‘Three clients of this have decided not to move to their next home because they are worried it will put more pressure on their family’s expenses.

This will certainly reduce demand and lower housing prices. There are very few winners in these uncertain times. Obviously rates need to be controlled and some leadership shown from government as payments become unaffordable.

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 have agreed to buy a home, have been urged to act but not to panic, Writing this is Money Editor Simon Lambert.

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.

L&C Mortgage Broker Partner at Money told me that mortgages are still available and you can use the best mortgage rates calculator to show deals matching 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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