The average two-year, fixed-rate, homeowner mortgage rate is close to surpassing the highest levels seen last autumn during the mini-Budget to a 15 year-high, experts have warned.
The typical two-year, fixed-rate residential mortgage on the market reached 6.63 per cent on Monday, financial data analyst website Moneyfacts said, only slightly lower than the 6.65 per cent peak seen on 20 October last year, which followed September’s mini-budget under Liz Truss.
With mortgage rates rapidly rising since mid-May, and two- and five-year fixed-rate mortgages jumping back to the over six per cent mark, MPs are expected to question mortgage lenders on Tuesday. According to The Times, in the past two months, average monthly repayments have jumped by £167 a month on a typical £200,000 25-year loan.
Bank and building society bosses will appear before the Treasury Committee in a hearing commencing at 10.15am, which will try to examine issues involving the mortgage stress faced by borrowers, its impact on the housing market in the UK and how mortgage holders are trying to cope, reported the BBC.
Last year, Kwasi Kwarteng’s £45bn tax cuts sent government and household borrowing costs soaring, but was quickly overturned with mortgage rates later settling down. It, however, started to rise once more amid expectations that interest rates will be higher for longer as the Bank of England tries to subdue stubbornly high inflation.
The Bank of England uses base rate rises as a tool to try to subdue inflation and the base rate is currently sitting at five per cent, following 13 rises in a row.
Moneyfacts’s figures also showed that the average five-year residential mortgage on Monday morning had a rate of 6.13 per cent.
The website took the full range of mortgage deposit sizes into account.
If the average two-year rate breaches the 6.65 per cent mark, it will be the highest since August 2008, according to Moneyfacts. Some experts have also warned that the rate might hover around seven per cent.
“I do anticipate we will see several more mortgage rate rises from the lenders in the short term, with the possibility that rates peak at around seven per cent,” Simon Gammon, from mortgage broker Knight Frank Finance, was quoted as saying by The Times.
“To me, it’s a picture of rates topping out, a small decline by the end of the year, and then 2024 will be the year in which we hope rates will come down, but it won’t be at any great speed.”
Meanwhile, a source close to Ms Truss took the opportunity to defend her mini-budget from last year: “It was always clear interest rates were going to have to be raised from the artificially low levels of recent years.
‘“One of the reasons Liz was pursuing a pro-growth agenda was precisely so that households and government would be better placed to deal with the consequences,” the source told The Times.
“Sadly we now find ourselves in a situation with higher interest rates and stagnant growth, with none of Liz’s reforms being enacted that would have given the economy a much-needed shot in the arm.”
Rachel Springall, a finance expert at Moneyfacts, said lenders made various rate rises across the mortgage market last week and withdrew some deals.
“The outlook for mortgage rates appears to be leaning to more rate rises, particularly as swap rates (which lenders use to price their mortgages) remain volatile,” she said.
“Rising rates may well worry borrowers who are coming off fixed-rate deals, such as those who locked into a rate below three per cent two years ago.
“It is still vital for borrowers to seek advice on what moves to make, but if they have some time left on their low-rate fixed mortgage, it’s wise to consider increasing their repayments to reduce the term of their deal.”
Borrowers considering making mortgage overpayments should carefully weigh up the benefits and potential drawbacks, as individual circumstances will vary.
Around 2.4 million fixed-rate mortgages are due to end between now and the end of 2024, according to figures from trade association UK Finance.
Chancellor Jeremy Hunt recently held a summit with mortgage lenders and a new mortgage charter was agreed to support those who are struggling.
Lenders will be able to offer borrowers a switch to interest-only payments for six months, and an extension to their mortgage term to reduce their monthly payments, with the option to switch back within six months.
Both options can now be offered without an affordability check.
A borrower will not be forced to leave their home without their consent unless in exceptional circumstances, in less than a year from their first missed payment.
The Financial Conduct Authority (FCA) has moved quickly to make rulebook changes.
Sheldon Mills, executive director for consumers and competition at the FCA, has urged homeowners who are struggling with their mortgage, or believe they might have difficulties, to speak to their lender.
“If you can keep up with your mortgage payments, you should, as changing your contract could lead to higher payments down the line,” Mr Mills recently said.
“But if you are worried about making your payments, contact your lender as soon as possible as they have a range of options to help.
“Regulation cannot stop rates from rising, but the wider measures we’ve put in place over the past decade will make sure people get the support they need, when they need it.”
A new consumer duty, which takes effect at the end of July, will also compel lenders to offer support that meets a customer’s individual needs, communicate clearly with people about their options and provide decent customer service.
Additional reporting by agencies
