Average mortgage rates have leapt by 0.5 percentage points in a month, with interest on home loans hitting highs not seen since the mid-2010s.
Five year fixed-rate deals are now at an average of 3.89 per cent, a 0.52 percentage point increase compared to June and the highest interest since November 2014, according to Moneyfacts.
It means that someone taking out a £300,000 mortgage today could be paying £84 more each month than someone who locked down their rate in June.
Bigger bills: Someone taking out a £300,000 mortgage today would be paying an average of £84 per month more than they would have if they took the same deal in June
And homeowners coming to the end of fixed deals could be stung with higher monthly bills when they come to remortgage, especially if they have not built up enough equity in their home to go up a loan-to-value bracket and secure a cheaper rate.
In 2017, average five-year fixed rates were just 2.85 per cent, 1.04 percentage points lower than today.
The average monthly payment on a £300,000, five-year fixed mortgage on a 25-year term in 2017 would have been £1,399, but someone taking out the same mortgage today would pay £166 more each month at £1,565.
The total interest they would pay over the fixed term would rise almost £10,000, from £83,960 five years ago to £93,921 now.
Meanwhile, the average two-year fixed rate mortgage also rose to its highest level since 2013 this month.
The typical rate is now 3.74 per cent, a 0.49 percentage point increase compared to June, according to MoneyFacts.
Rise: Rates have climbed to record highs leading to worries over remortgaging costs
This time in 2021, the average two year fix was at 2.55 per cent and the average five year at 2.78 per cent, 1.19 and 1.11 percentage points lower than today’s rates respectively.
Chris Skyes, technical director at mortgage company Private Finance said: ‘Coming out of a deal now, clients will more often than not be getting a higher interest rate then they have been used to paying for years.
‘The only situations I’ve seen recently where I’m getting a client a better rate is where they were at 95 per cent loan-to-value originally and are now at a much lower loan to value so are benefiting from that, or where they’d had very specialist circumstances before, such as adverse credit, or very complex income, so had to go with a specialist lender and now can go to a mainstream one.
While he suggests other routes to making savings on your mortgage, including extending the term of the deal or putting an amount on interest only, he warns these may cost more in the long run.
‘My honest financial recommendation is to stick with the payments if you can,’ Sykes said.
Standard variable rates have also risen, according to Moneyfacts, breaching 5 per cent for the first time in 13 years.
Having risen by 0.15 per cent this month, the average SVR now sits at 5.06 per cent an 0.66 percentage point increase since December 2021 when it was at 4.4 per cent.
Increases ‘won’t cause widespread financial distress’
Despite these increases, and the ongoing cost of living crisis, Andrew Wishart, senior property economist at Capital Economics, says we are unlikely to see remortgaging pushing a substantial number of homeowners into financial distress.
This view is supported by the Bank of England. In its July Financial Stability Report it said that even after adjusting for rising living costs and interest rates, the share of households with very high debt servicing costs would remain well below financial crisis levels.
According Wishart’s figures the worst affected will be those coming to the end of a two-year fix in September 2023.
Based on a 25 per cent deposit mortgage secured against the average home, he predicted the monthly repayments will increase from £719 to £882.
Plan ahead: Experts suggest borrowers start looking at deals up to six months before the need to remortgage to try and lock in a more favourable rate
Why are rates going up 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 a bid to curtail inflation, but they are impacted by other factors too.
Eleanor Williams, finance expert at Moneyfacts, said: ‘There are numerous factors which affect fixed rate pricing, rather than it simply tracking the Bank of England base rate.
‘Providers take into account many influences, such as funding, swap rates, pricing pressures from other providers, and being able to maintain their service levels, among others.
‘Having said that, it is interesting to note that in the period between December 2021 and July 2022, base rate has risen from 0.10 per cent to 1.25 per cent – an increase of 1.15 per cent in total.’
Last month the Bank of England rose the base rate to 1.25 per cent, the fifth hike in six months.
At the time the cheapest two and five-year fixed rate mortgage deals were charging in excess of 2.5 per cent.
‘It’s more important than ever for borrowers to keep their mortgage under review, especially as other household costs are also climbing,’ advised David Hollingworth of broker L&C.
‘Those that are currently in a fixed rate will at least be protected from the rate rises currently feeding through but they should look ahead to when the current deal will come to an end.
‘Rates can be secured up to six months ahead, so in the current market it could be beneficial for borrowers to start their review sooner, enabling them to get ahead of any further rate rises.
‘They should be sure to factor in any fees rather than only zoning on the headline rate. Most lenders offer a range of options that can help with costs and fees which for some will be more cost effective, despite a slightly higher rate.
‘Those that have managed to lock into one of the ultra-low rates of last year may want to consider if they can make the most of that deal by overpaying a little.
‘Most deals will allow up to 10 per cent overpayment per annum without incurring any early repayment charge and, whilst easier said than done, it could give the chance to reduce the mortgage whilst the rate remains lower, which will help them prepare for a potentially higher rate environment.’
Best mortgage rates and how to find them
Mortgage rates have risen substantially as the Bank of England’s base rate has climbed rapidly.
If you are looking to buy your first home, move or remortgage, it’s important to get good independent mortgage advice from a broker who can help you find the best deal.
To help our readers find the best mortgage, This is Money has partnered with independent fee-free broker L&C.
Our mortgage calculator powered by L&C can let you filter deals to see which ones suit your home’s value and level of deposit.
You can also compare different mortgage fixed rate lengths, from two-year fixes, to five-year fixes and ten-year fixes, with monthly and total costs shown.
Use the tool at the link below to compare the best deals, factoring in both fees and rates. You can also start an application online in your own time and save it as you go along.
> Compare the best mortgage deals available now