A typical two-year fixed mortgage deal now has an interest rate of more than 6% for the first time since December. Mortgage lenders have been putting up rates and pulling deals at a rapid rate in recent weeks, driving up costs for homeowners seeking new deals.
Recent high inflation and strong pay growth figures mean interest rates are now expected to rise by more than expected, pushing up borrowing costs.
Rishi Sunak has appeared to rule out any extra support for homeowners. On Monday, the prime minister told ITV’s Good Morning Britain that his priority was to halve inflation by the end of the year.
“I know the anxiety people will have about the mortgage rates, that is why the first priority I set out at the beginning of the year was to halve inflation because that is the best and most important way that we can keep costs and interest rates down for people.”
On Monday, the average rate for a two-year fixed-rate mortgage stood at 6.01% according to the financial information service Moneyfacts.
The interest rates on mortgages soared to 6.65% after last autumn’s mini-budget before calming slightly. But rates have climbed sharply again recently.
A typical five-year fixed rate is now at 5.67% compared with last year’s peak of 6.51%.
Expectations that interest rates will stay higher for longer have been reflected in the funding cost of mortgages, hitting new borrowers, and those trying to remortgage.
The interest rate for the UK government to borrow money over two years – a key influence on mortgage rates – has been rising sharply, and on Monday it hit 5% for the first time since 2008.
Mortgage lenders have been pulling deals and putting up rates at short-notice, while some have been inundated with demand and so forced to pull or raise rates again. On Monday, TSB said it was withdrawing its mortgage range sold via brokers, and expected to re-price on Wednesday.
More than 400,000 people will see their existing fixed deals end between July and September, a comparatively high number. Many face the prospect of having to budget for monthly repayments that are hundreds of pounds more expensive than they have become accustomed to.