Mortgage rates: Now NO major lender has a two-year fix under 5%
Now, NO mainstream lender offers a two-year fixed mortgage with less than 5% interest as rates continue to rise
- Five-year fixes offer better rates as interest rates are expected to fall over the longer term
- Next week ‘huge’ for mortgages with inflation figures and base rate decision
There are no regular two-year fixed home mortgage rates of less than 5 percent on the market anymore as interest rates on home loans continue to rise.
All of the major lenders have now raised their rates, leaving only Hanley Economic Building Society to offer a biennial interest rate below 5 percent. That mortgage costs 4.85 percent.
The news comes as experts have warned of a ‘massive week’ for mortgages as the latest inflation figure is released next Wednesday, before the Bank of England’s base rate is changed a day later.
There is only one sub-5% two-year fixed-rate deal left for homeowners if interest rates rise
Chris Sykes, technical director at broker Private Finance, said fluctuations in swap rates – the financial mechanisms banks use to predict where future interest rates will be and determine their mortgage rates – were to blame for the increases.
“As of today, a two-year swap is 5.4 percent and lenders will want to make a margin on lending, so it’s no big surprise that we see most two-year money now above 5 percent,” he says.
“This is based on market expectations that the base rate will soon rise above 5 percent at some point, with some forecasting that the base rate will move to 5.5 percent.”
Skyes adds that as interest rates are expected to be cheaper going forward, lenders are passing some of that saving on to borrowers by keeping more five-year deals below 5 percent.
NatWest announced today that it is aligning its rates on two-year and five-year first-time buyers, purchase agreements and mortgages with a deposit of 10 percent or more.
Nicholas Mendes, mortgage technical manager at estate agent John Charcol, says: ‘By offering the same rate, the burden of proof is on the homeowners and their risk appetite.
“Having a two-year fix provides stability, but allows you to review your options on a regular basis. If the fixed rates decrease, you have the advantage that you can switch to a new rate more quickly.
“A five-year fix offers longer-term stability, but if rates fall, you may end up paying a higher rate for a longer period of time.”
The Bank of England is widely expected to raise key rates from the current level of 4.5 percent next Thursday, the 13th consecutive rise in just 18 months.
After a period of steady decline since the start of the year, mortgage rates have risen rapidly over the past two weeks.
The higher-than-expected inflation rate of 8.7 percent in May led the market to price in further increases in key interest rates.
Raising interest rates is all the bank has in its arsenal to curb the ongoing inflation that is decimating household finances.
According to Moneyfacts, the average two-year fixed-rate mortgage deal rose to 5.92 percent today — compared to 5.9 percent yesterday and 5.49 percent two weeks ago.
The five-year average interest rate has risen to 5.56 percent, from 5.54 percent yesterday and 5.17 percent two weeks ago.
Homeowners with a £300,000 mortgage could see their annual payments increase by £13,200 by the end of the year compared to 18 months ago.
So far, the rate hikes have added £9,564 a year – or £797 a month – for homeowners with a standard floating rate mortgage of £300,000, according to broker L&C Mortgages.
About 1.6 million homeowners have an SVR mortgage, which typically grows with the base rate.
