Typical two-year fixed mortgage rate goes above 4% for the first time in nearly a decade as inflation continues to soar
The average interest rate on a two-year fixed mortgage has exceeded 4 per cent for the first time in almost a decade, following the Bank of England’s latest base rate hike.
An average two-year fixed rate mortgage is now at 4.09 per cent, according to Moneyfacts: 62.3 per cent more expensive than the same time last year when it was at 2.52 per cent.
It marks the first time the rate has breached 4 per cent since February 2013 when it hit 4.09 per cent.
Rate rises: The average 2-year fixed mortgage rate has risen by 1.75% since December 2021 when it stood at 2.34%
A typical fixed five-year mortgage – now a more popular option as buyers seek to shield themselves from further rate rises – has risen from 2.75 per cent last August to 4.24 per cent today.
Mortgage rates have been climbing since December 2021 when the Bank of England began increasing the base rate in a bid to combat soaring inflation.
Over three quarters (76 per cent) of borrowers are on a fixed rate – and so the pain from higher rates will filter through slowly as their deals come to an end and they remortgage.
Eleanor Williams, finance expert at Moneyfacts, said: ‘Since the start of this month, the overall average two-year fixed rate has already increased by 0.14 per cent and has now reached 4.09 per cent.
‘In December 2021 this rate sat at 2.34 per cent, so has risen by 1.75 per cent since then, 0.10 per cent more than base rate has increased over the same period.
‘The overall five-year fixed average has gone up by 0.16 per cent since the first of this month to 4.24 per cent, a rise of 1.60 per cent compared to December 2021 (2.64 per cent).’
Using March 2022 UK House price data on the average London property (c.£523,000) and a circa 75% loan to value mortgage (around £392,000) the monthly costs of a mortgage on the average 2 year fixed deal would have increased £600 a month compared to two years ago.
This would result in an increased interest cost of nearly £14,500 over the lifetime of the mortgage.
Those on standard variable rate mortgages can see their rate increased whenever their lender chooses, and these have been moving up alongside the base.
Chris Sykes, technical director at Private Finance, said: ‘In real terms the average figures will take into account things like adverse credit lenders and very high loan to value products, but the average tells a similar story to those of the best buys in the market.
‘This is leading to people taking measures like putting some debt on interest only or extending their mortgage term which can further increase the level of interest paid on the mortgage over time unless overpayments are made.
‘Others are drawing funds from investments or savings to overpay / pay down their mortgage to have less of an affect on monthly cash flow.’
Earlier this month the Bank of England increased its base interest rate by 0.5 per cent – the biggest single increase in 27 years.
It is the latest in a string of rises. The base rate has risen from 0.1 per cent in December to 1.75 per cent now, and the Bank’s Monetary Policy Committee has signalled it is willing to go further in order to tackle soaring inflation.
The UK inflation rate is set to peak at a near 50-year-high of 18 per cent early next year with energy prices set to soar, investment bank Citi has warned.
A 3 per cent base rate could see five-year fixed mortgages averaging 4.75 per cent.
Two years ago during the pandemic mortgages reached historic lows of as little as 0.89 per cent, as the housing market boomed.
In September 2020 the average two-year fixed rate stood at 2.24 per cent – 82.5 per cent lower than today, according to MoneyFacts.
To help our readers find the best mortgage, This is Money has partnered with independent fee-free broker L&C.
Article sourced from This is Money on 7th September 2022 Original full article can be viewed by clicking link below
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