Two-year fixed mortgage rates pass 6% as home loans reach highest prices since 2008

The average two-year fixed mortgage rate has reached 6.07 percent, the highest interest rate in 14 years.

The five-year fixed rate has also risen, and the interest rate now averages 5.97 percent, according to Moneyfacts analysts.

It’s part of the fallout from the Chancellor’s mini-budget less than two weeks ago, which sparked new uncertainty in the UK economy by announcing a series of tax cuts – some of which have since been reversed.

The two-year average interest rate is up 1.33 percent in the past 13 days, while the five-year average interest rate is up 1.22 percent.

In cash, the impact on borrowers looking for a new mortgage is severe. For a £200,000 mortgage, the cost of borrowing with a new two-year contract has increased by £158 per month or £1,896 per year in less than two weeks.

The rise is even stronger compared to last December, before the Bank of England started raising its key rate.

On December 1, the rate for an average two-year fix was just 2.34 percent. At that rate, a £200,000 mortgage would cost just £881 a month, but today it would cost £1,297.

Mortgage rates have risen steadily since December, when the Bank of England began raising its base rate from 0.1 percent in a bid to tackle rising inflation. After successive increases, it now stands at 2.25 percent.

The pace of mortgage rate hikes accelerated over the summer as the central bank continued its course. On Sept. 1, the average two-year fixed rate was 4.24 percent, and a five-year fix was 4.33 percent, according to Moneyfacts.

By the end of the month (September 30), this had increased to 5.17 percent and 5.10 percent respectively.

This means that someone who took out a two-year fixed mortgage at the end of September would pay on average £107 more per month or £1,285 more per year on a £200,000 mortgage than someone who took out one in the beginning.

Rachel Springall, financial expert at MoneyFacts, said: “Borrowers may be concerned about the rise in fixed mortgage rates, but it is essential that they seek advice to assess the deals currently available to them.

The decline in product availability may be worrying, but many lenders stress that their withdrawals are temporary amid uncertainties about interest rates.

‘Holding on for longer may seem more attractive, especially as both the average two- and five-year fixed interest rates are rising to levels not seen in more than a decade. Consumers should think carefully about whether now is the right time to buy a home or wait and see how things change in the coming weeks.’

Homeowners can check what rates they could get for their mortgage size and the value of their home over different fixed-rate periods using This is Money’s best mortgage interest calculator.

Joshua Raymond, director of financial brokerage XTB said: “A lack of available products as mortgage lenders assess the debt market, along with heightened interest rate expectations, are the two main factors driving the average two-year mortgage interest rate to more than six percent.

“What we’re likely to see are borrowers switching to longer-term deals, but we do expect those rates to see upward pressure as well, so it’s likely that borrowers will face higher mortgage costs whether or not they renew for short periods.” or long term deals.

Others note that despite the government’s cut in stamp duties in its mini-budget, the rising cost of borrowing will dampen demand for home buying.

James Miles, director and mortgage advisor at real estate agency The Mortgage Quarter, added: “I have had three clients decide not to move to their next home because they are concerned about the increasing pressure on their household expenses.

“This will certainly reduce demand and stabilize house prices. There are few winners in these uncertain times. It is clear that tariffs need to be monitored and some government leadership shown as payments become unaffordable.”