Two-year fixed mortgage rates pass 6% as home loans reach highest prices since 2008


Two-year fixed mortgage rates pass 6% as home loans reach the highest prices since 2008

  • Price of a £200,000 mortgage has risen £1,896 a year since the mini-Budget
  • Typical two-year fix is now at 6.07% interest, according to Moneyfacts
  • Meanwhile, the average 5-year fixed rate deal now costs £5.97% 
  • Brokers warn cost of borrowing will hit demand and push down house prices 

The average two-year fixed mortgage rate has reached 6.07 per cent, the highest level of interest in 14 years. 

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

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

The average two-year fixed rate has risen 1.33 per cent in the 13 days since, while the average five-year fix has increased by 1.22 per cent.

Interest increase: The cost of borrowing has been steadily increasing since December last year, but accelerated following the Chancellor’s mini budget on 23 September

In cash terms, 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 per year, in under two weeks.

The rise is even steeper when compared to December last year, before the Bank of England began raising its base rate.

On 1 December the rate for an average two-year fix was just 2.34 per cent. At that rate a £200,000 mortgage cost just £881 a month, but today it would cost £1,297.

Mortgage rates have been rising steadily since December when the Bank of England began pushing up its base rate from 0.1 per cent in a bid to tackle rising inflation. Following successive rises, it now sits at 2.25 per cent.

The pace of mortgage rate rises accelerated over the summer as the central bank continued its trajectory. On 1 September the average two-year fixed rate was 4.24 per cent, and a five-year fix was 4.33 per cent, according to Moneyfacts. 

By the end of the month (30 September) these had risen to 5.17 per cent and 5.10 per cent, respectively.

This means that someone who took a two-year fixed mortgage out at the end of September will, on average, pay £107 more a month, or £1,285 more annually, on a £200,000 mortgage than someone who took one out at the start.

Rachel Springall, finance expert at MoneyFacts, said: ‘Borrowers may well be concerned about the rise to fixed mortgage rates but it is essential they seek advice to assess the deals that are available to them right now. 

‘The drop in product availability may be worrying but many lenders have been vocal to stress their withdrawals are temporary amid interest rate uncertainties. 

‘Fixing for longer may seem more appealing, particularly as both the average two and five year fixed rates rise to levels not seen in over a decade. Consumers must carefully consider whether now is the right time to buy a home or to wait and see how things change in the coming weeks.’

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

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

Joshua Raymond, director at financial brokerage XTB said: ‘A lack of available products whilst mortgage providers assess the debt market alongside heightened rate expectations are the two key factors driving the average two year mortgage rate to more than six per cent.

‘What we will likely see are borrowers moving to longer term deals, but we do expect those rates to also see upward pressure so it’s likely that borrowers will be facing higher mortgage costs regardless of whether they are renewing on short term or long term deals.

Others note that despite the Government’s stamp duty cut in its mini-Budget, the rising cost of borrowing will dampen demand for buying homes. 

James Miles, director and mortgage adviser at broker The Mortgage Quarter added: ‘This I’ve had three clients decide not to move to their next home as they’re concerned with increasing strain on their household expenditure. 

‘This will surely reduce demand and level out house prices. There are very few winners in these uncertain times. Clearly rates need to be controlled and some leadership shown from the Government as payments are becoming unaffordable.’

What to do if you need a mortgage 

Borrowers who need to find a mortgage because their current fixed rate deal is coming to an end, or because they have agreed a house purchase, have been urged to act but not to panic, writes This is Money editor Simon Lambert.

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

Rates are changing rapidly, however, and there is no guarantee that deals will last and not be replaced with mortgages charging higher rates. 

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

What if I need to remortgage? 

Borrowers should compare rates and speak to a mortgage broker and be prepared to act to secure a rate. 

Anyone with a fixed rate deal ending within the next six to nine months, should look into how much it would cost them to remortgage now – and consider locking into a new deal. 

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

What if I am buying a home? 

Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be. 

Home buyers should beware overstretching themselves and be prepared for the possibility that house prices may fall from their current high levels, due to  higher mortgage rates limiting people’s borrowing ability.

How to compare mortgage costs 

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

This is Money’s mortgage broker partner L&C told me that mortgages are still available and you can use our best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

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

> Check the best fixed rate mortgages you could apply for 

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