Average two-year fix now above 6%
For the first time since December, the typical two-year fixed mortgage agreement now carries an interest rate of greater than 6%.
In recent weeks, mortgage lenders have increased rates and withdrawn offers at a quick clip, raising expenses for homeowners looking for new agreements.
Recent high inflation and good wage growth numbers indicate that interest rates will likely rise more than anticipated, increasing borrowing expenses.
Since 2021, interest rates have increased 12 times in an effort to curb price increases.
According to the financial data provider Moneyfacts, the average rate for a two-year fixed-rate mortgage was 6.01% on Monday.
Following the mini-budget in the autumn of last year, mortgage interest rates shot up to 6.65% before beginning to decline. However, rates have increased substantially once more.
A average five-year fixed rate is currently 5.67%, down from a peak of 6.51% last year.
Mortgage funding costs have increased as a result of expectations that interest rates would remain higher for a longer period of time, harming both first-time buyers and those looking to refinance. While some lenders have been overwhelmed with demand and have been forced to drop transactions or raise rates again, others have been pulling deals and raising rates on short notice.
Between July and September, over 400,000 people will see their current fixed packages expire, which is a significant number. Many will have to plan their finances to accommodate monthly repayments that are several hundred pounds more expensive than they are used to.
On Thursday, the Bank of England’s Monetary Policy Committee will review the base rate, which is now set at 4.5%. It is largely anticipated that the base rate will rise for the 13th consecutive time.
However, Sir Howard Davies, a former deputy governor of the Bank, said over the weekend that it was best to “wait and see” to gauge the full impact of the rate increases implemented thus far.
Since the majority of borrowers on the mortgage market are on fixed rates, an increase in interest rates mainly affects those few who are on variable rates and those whose fixed rates are about to expire, according to him.
Therefore, it is debatable whether the impact of the interest rate increases we have already witnessed on consumer spending has yet to fully materialise.
The rate of price growth, or inflation, is still stubbornly high in the UK. Inflation in April was 8.7% annually, which is still significantly above than the Bank’s target of 2%.
By increasing interest rates, the Bank anticipates that consumers would spend less money and purchase fewer goods, which should slow the rate of price increases.
It also makes it more challenging for businesses to borrow money and grow.
On Wednesday, the most recent official inflation statistics will be released.