Bank of England governor Andrew Bailey warns of more mortgage pain to come

Mortgage rates have risen near the levels seen last year after Liz Truss’s disastrous mini-budget.

According to analysts MoneyfactsCompare, the average two-year fixed-rate deal reached 6.63 percent today, just below the 6.65 percent mark reached on Oct. 20.

The last time before the fall of 2022 this figure exceeded 6 percent was almost 14 years ago, in November 2008 during the global financial crisis.

Banks and building societies have raced to raise mortgage rates in recent weeks, with many pulling deals from the market to reprice them.

Rates for two-year fixed deals have increased by an average of 1.14 percentage points since the beginning of June.

The Bank of England has raised interest rates sharply since December 2021, when it was 0.1 percent, to 5 percent today.

Interest rates are widely expected to rise to 6 percent by the end of the year as the Bank desperately tries to curb inflation.

This could lead to further waves of mortgage rate hikes, with even more misery for homeowners.

Stuart Cheetham, CEO of lender MPowered Mortgages, expects the average two-year fixed rate agreement to cross the 7 percent mark before the end of the year.

“For most people, mortgage rates will continue to rise 20 to 30 percentage points over the next six to eight weeks,” he said.

But interest rates are expected to rise further, so after that we will see a few sharp rises in mortgage rates.’

The current turmoil is expected to last much longer than last fall’s short, sharp shock, he warned.

The Bank of England is expected to raise interest rates to 6 percent by the end of 2023

Last year, the market panicked in response to the uncertainty surrounding Kwasi Kwarteng’s controversial mini-Budget.

Nearly 2,000 mortgage products were pulled by lenders rushing to re-price deals to reflect expected future rate hikes.

Mr. Cheetham said, “No one saw it coming last time, so it caused a sharp spike. But since March there has been increasing uncertainty around inflation, a steady rise in negative sentiment and several hikes in key interest rates.

“So the settlement will take several quarters, instead of weeks like last time.”

Homeowners and buyers scramble to secure deals as rates continue to rise amid the ongoing chaos in the mortgage market.

The value of new remortgages written by Knight Frank Finance rose 41 percent in May and June compared to the previous two-month period, it said.

Lenders are inundated with applications and are forced to pull deals off the market in order to review the price.

Mortgage rates have risen to nearly the level seen after Liz Truss’s disastrous mini budget (pictured)

As of today, Virgin Money raised its two- and three-year fixed rate agreements by 0.35 percentage point and its five-year rate by 0.3 percentage point.

David Hollingworth, from mortgage broker L&C Mortgages, said: ‘We’re still seeing a lot of change coming through and rates are moving very fast, so it’s no surprise that borrowers want to lead the way.’

Most borrowers have made short-term deals such as two-year rather than five-year fixes in the hope that interest rates will begin to fall in the next 12 to 18 months, Mr Hollingworth said.

Ray Boulger, of mortgage broker John Charcol, said: ‘Homeowners who will be most affected are those whose current fixed rate expires in the next 12 months, while borrowers with fixed rates that run until 2025 or beyond will still see a big increase from their previous very low rate, but they will probably avoid the worst rate increases.”