Mortgage rates: Two-year fix keeps rising to hit 6.53% despite Government U-turns
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The average fixed rate for a two-year fixed mortgage for all loan-to-values has risen to 6.53 percent, the day after new Chancellor Jeremy Hunt recalled much of the government’s package of tax cuts.
The average rate for five-year fixed deals also rose to 6.36 percent, despite falling slightly below 6.30 percent late last week, according to financial information service Moneyfacts.
Separately, NatWest just raised its mortgage rates for the second time in just over a week, raising all of its fixed rates to more than 6 percent.
The last time the average two-year fixed-rate mortgage hit 6.4 percent or more was in August 2008 during the fallout from the global financial crash when it hit 6.94 percent.
Interest rate rise: The price of fixed income deals has continued to rise since late last year, but has accelerated since the government mini-budget
Hunt’s announcements, which included halting the average energy bill of £2,500 in April, were made in an effort to appease markets after the sell-off of government bonds – government debt – and rising borrowing costs.
This is passed on to homeowners via lenders through rising mortgage rates.
The increases will cost borrowers thousands more a year to pay for their homes. The average two-year fixed deal rate for all deposit sizes has increased by 1.79 percent from mini-Budget day to date, according to Moneyfacts.
The increase adds £215 a month to the cost of a £200,000 mortgage or £2,508 a year.
Why is mortgage interest still rising?
Current rates seem to show that the impact of the U-turns has not yet filtered through to the mortgage market.
This is despite the fact that brokers suggest that the costs of borrowing for banks and mortgage banks are already becoming cheaper.
Lenders may struggle to cope with the level of customer inquiries they receive due to market uncertainty, and not want to put pressure on their services by lowering rates and becoming the cheapest on the market.
Chris Sykes, technical director at broker Private Finance, said: “Since Kwasi was fired last week, interest rates on institutional loans have been reduced, so it may come as a surprise to some that mortgage lenders are still raising rates in some cases.
“From speaking with lenders, this is no longer necessarily due to political uncertainty or the cost of funding. Service levels are currently being expanded and they want to keep demand in check by raising rates above their competitors.”
The Moneyfacts rates are averages and not the cheapest deals on the market. These can be seen below.
| Fixed period | Deposit | Best rate 18 Oct 21 | Best rate 14 Oct 22 | % difference | Payment difference on £150,000 loan |
|---|---|---|---|---|---|
| Two years | 40% | 1.07% | 5.64% | 4.57% | £366.99 |
| 25% | 1.19% | 5.69% | 4.50% | £362.99 | |
| 10% | 1.99% | 5.89% | 3.90% | £324.46 | |
| 5% | 2.79% | 6.24% | 3.45% | £293.54 | |
| Five years | 40% | 0.98% | 5.34% | 4.36% | £342.12 |
| 25% | 1.22% | 5.39% | 4.17% | £333.91 | |
| 10% | 2.50% | 5.54% | 3.04% | £252.59 | |
| 5% | 2.99% | 5.89% | 2.90% | £241.12 | |
| Source: Defaqto | |||||
| Fixed period | Deposit | Best rate 22 Sep 22 | Best rate 13 Oct 22 | % difference | Payment difference on £150,000 loan |
|---|---|---|---|---|---|
| Two years | 40% | 4.06% | 5.64% | 1.58% | £137.43 |
| 25% | 4.06% | 5.69% | 1.63% | £141.96 | |
| 10% | 3.49% | 5.89% | 2.40% | £204.39 | |
| 5% | 3.99% | 6.24% | 2.25% | £196.60 | |
| Five years | 40% | 3.82% | 5.34% | 1.52% | £130.35 |
| 25% | 3.86% | 5.39% | 1.53% | £131.53 | |
| 10% | 3.98% | 5.54% | 1.56% | £135.06 | |
| 5% | 4.09% | 6.24% | 1.80% | £156.10 | |
| Source: Defaqto | |||||
What are NatWest’s rates now?
After raising rates as early as Oct. 10, NatWest has now withdrawn some of those products and unveiled a new line of mortgages that went live today.
The bank’s cheapest rate, a five-year fixed deal only available to existing customers with a 40 percent down payment, is up 0.8 percent from 5.24 percent to 6.04 percent.
On a £200,000 mortgage, this increases the monthly payments by £96 from £1,197 to £1,293, the equivalent of £1,152 a year.
For first-time buyers looking at smaller deposit mortgages, the rise in interest rates is less pronounced, but still significant.
Quieter? Some brokers say the rate of change in mortgage rates could slow down soon
A two-year deal with a 10 percent down payment for a new mortgage is up 0.4 percent to 6.54 percent.
It means those who signed a deal with NatWest just a week ago saved £49 a month or £588 a year.
For the same five-year fixed-rate terms, the price has increased by 0.75 percent to 6.39 percent, adding an extra £92 to monthly mortgage payments, or £1,104 a year.
Where will the rates go next?
With the economic backdrop changing rapidly, it’s hard to tell. However, some brokers predict that things could calm down in the coming weeks, at least when it comes to mortgage rate changes.
Bank of England’s next key rate hike is already priced in, and this could delay further changes from lenders
Craig Fish, founder and director of Lodestone Mortgages & Protection, said: ‘I don’t really expect much change in the short term, despite the fact that a number of lenders have increased their rates in recent days.
“I think the next Bank of England rate hike is already priced in, and this could delay further changes from lenders.”
The next meeting of the Bank to decide whether to raise the base rate will take place on 3 November.
Barclays has also released rates for new products, with its five-year fixed-rate mortgage on a 40 percent down payment versus 6 percent for new contracts.
It also has a seven-year commit at 6 percent for existing customers with a 40 percent deposit that carries over to a new deal.
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