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

Rising interest: The cost of borrowing has been rising steadily since December last year, but accelerated following the Chancellor's September 23 mini-budget

Two-year fixed mortgage rates top 6% as home loans hit highest prices since 2008

  • The price of a £200,000 mortgage has risen by £1,896 a year since the mini budget
  • The typical two-year fix is ​​now at 6.07% interest, according to Moneyfacts
  • Meanwhile, the average 5-year fixed rate contract now costs £5.97
  • Brokers warn that the cost of borrowing will affect demand and drive down house prices

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

Five-year fixed rates have also risen, with interest now averaging 5.97%, according to Moneyfacts analysts.

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

The average two-year fixed rate rose 1.33% over the next 13 days, while the average five-year fixed rate rose 1.22%.

Rising interest: The cost of borrowing has been rising steadily since December last year, but accelerated following the Chancellor's September 23 mini-budget

Rising interest: The cost of borrowing has been rising steadily since December last year, but accelerated following the Chancellor’s September 23 mini-budget

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

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

On December 1, the rate for a two-year average rate was only 2.34%. At this 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 by 0.1% in an effort to combat rising inflation. After successive increases, it now stands at 2.25%.

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

By the end of the month (September 30), they had risen to 5.17% and 5.10%, respectively.

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

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

“The decline in product availability may be concerning, but many lenders stressed that their withdrawals were temporary due to interest rate uncertainties.

“Fixing longer may seem more attractive, especially as the average two- and five-year fixed rates reach levels not seen in more than a decade. Consumers must carefully consider whether the time is right to buy a home or to wait and see how things will change in the weeks to come.

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

There are very few winners in these uncertain times. It is clear that the tariffs must be controlled

Joshua Raymond, Director of Financial Brokerage XTB, said: ‘A lack of available products as mortgage providers assess the debt market alongside increased rate expectations are the two key factors pushing the average mortgage rate on two years to more than six percent.

‘What we’re likely to see is borrowers switching to longer-term deals, but we expect those rates to also come under upward pressure, so it’s likely borrowers will face costs higher mortgages, whether they are renewing short-term or long-term agreements.

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

James Miles, director and mortgage adviser at brokerage The Mortgage Quarter, added: ‘This I had three clients who decided not to move to their next home because they feared mounting pressure on household spending. .

“It will surely reduce demand and stabilize property prices. There are very few winners in these uncertain times. It is clear that rates need to be controlled and the government needs to show leadership as payments become unaffordable.

What to do if you need a mortgage

Borrowers who need to find a mortgage because their current fixed rate contract is coming to an end, or because they have agreed to buy a home, have been urged to act but not panic, written This is Money editor Simon Lambert.

Banks and building societies are still lending and mortgages are still being offered and applications are being accepted.

However, rates change rapidly and there is no guarantee that transactions will last and not be replaced by mortgages at higher rates.

This is Money’s best mortgage rate calculator, powered by L&C, that can show you deals that match your mortgage and property value.

What if I need to remortgage?

Borrowers should compare rates and speak to a mortgage broker and be prepared to act to get a rate.

Anyone with a fixed-rate deal ending in the next six to nine months should consider how much it would cost them to remortgage now — and consider entering into a new deal.

Most mortgage transactions allow fees to be added to the loan and they are then only charged at the time of subscription. By doing so, borrowers can secure a rate without paying costly arrangement fees.

What if I buy a house?

Those who have agreed to buy a home should also aim to get quotes as soon as possible, so they know exactly what their monthly payments will be.

Homebuyers should be wary of overstretching and prepare for the possibility of home prices falling from their current high levels, due to higher mortgage rates limiting people’s ability to borrow.

How to Compare Mortgage Costs

The best way to compare mortgage costs and find the right deal for you is to talk to a good broker.

This is Money’s partner mortgage broker, L&C, told me that mortgages are still available and that you can use our best mortgage rate calculator to view offers that match your home’s value, size of mortgage, term and fixed rate needs.

Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage, compare rates and then speak to a broker as soon as possible, so they can help you find the loan mortgage that’s right for you.

> Check out the best fixed rate mortgages you could apply for

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