The average two-year fixed mortgage rate is now 2 percentage points higher than at the start of the year, increasing average monthly payments by an average of £159.
According to an analysis by L&C Mortgages, the average two-year home loan rose to 3.46 percent, while the five-year bond rose to 3.5 percent.
The same January figures were just 1.3 percent and 1.55 percent, respectively. Over a period of two years, that means an increase of 166 percent.
A borrower taking out a typical £150,000 amortization mortgage over 25 years at the average two-year interest rate would now face monthly payments of £159 more than at the start of the year. This is an annual increase of over £1,900 compared to January.
Rate hikes: Mortgage rates are higher, meaning potential pain for homeowners
The Bank of England is expected to raise interest rates from 1.25 percent to 1.75 percent later today and will do nothing to calm borrowers’ fears.
The base interest rate rose from 0.1 percent in November to 1.25%. Lenders typically pass these increases on to their customers.
If it rises as expected, it will be its highest level since 2008, when the central bank slashed interest rates amid the global financial crash.
The rise in the base rate is an attempt by the bank to tackle inflation, which is now forecast to reach 15 percent by the end of the year.
In addition to new borrowers, rising interest rates will also hit homeowners looking to take out a new mortgage.
Two years ago, in early August 2020, borrowers could have taken a two-year rate from Coventry Building Society with interest at 1.3 percent at 75 percent LTV, plus a low fee of £999.
Had they taken out a £225,000 mortgage on £300,000 over 25 years on this deal, they would have had monthly payments of £878.87.
Now if they re-mortgage to the current top ten two-year average of 3.46 percent, monthly payments on a remaining £209,566 balance over the remaining 23 years would be £1,102.11 a month, £223 higher than their original deal.
David Hollingworth, associate director at L&C Mortgages, said: “The mortgage landscape continues to change rapidly as lenders balance volatile financing terms and service levels, forcing frequent changes in mortgage products.
“As a result, mortgage borrowers are faced with higher payments, either as a result of an increase in the base rate or because the protection of their current fixed contract expires.
As borrowers brace for another rate hike this week, it’s not surprising that many are seeking the shelter of a fixed rate.
‘That provides monthly savings and builds payment security for households that already suffer from other living costs.’
Hollingworth acknowledges the risk, noting that many borrowers shop for a new deal as early as possible to lock in lower rates.
And lenders respond. Homeowners can check how much they should pay to fix now with This is the best mortgage rate comparison calculator made with partner L&C.
Raymond Boulger, senior mortgage technical manager at John Charcol, says lenders are extending the maximum term for product transfers to retain existing customers.
“It means that for borrowers looking to take out a new mortgage, their provider can allow them to sign a new deal earlier than their contract limit — traditionally three to four months before the plan ends — allowing them to get a lower interest rate.” anticipating expected future increases.
It is pertinent that several lenders currently have lower product transfer rates than the rates they offer for new business.
“It costs less to keep a customer than it does to acquire a new one, and especially now that many lenders’ service levels are sub-optimal, there is a strong incentive to retain existing customers rather than having to replace them.” replaced by new ones, which is much more time consuming,” he says.
Interest rates on 2-year fixed-rate mortgages have risen 2% since January, putting additional pressure on borrowers
Others warn that lenders are also updating the rates they offer alarmingly fast.
Ashley Thomas, director at mortgage broker Magni Finance: ‘Now lenders are raising rates and withdrawing existing products much faster.
‘Where they used to give us a notice period of at least one day, this has now been reduced in some cases to a few hours.
“For example, a lender sent an email at 4:30 p.m. yesterday saying that they would change their existing rates at the end of the day.
“This makes it very difficult to get a mortgage, so I would advise people to move as soon as possible.”
The Bank of England is expected to raise interest rates again this month
Other brokers, including Boulger, report a significant delay in the time it takes for banks to process applications as they are overwhelmed by requests from borrowers trying to anticipate future interest rate hikes.
This has been the case for several weeks, he said.
Rhys Schofield, director of mortgage company Peak Money says: ‘A caveat would be that the normally very good and competitively priced Nationwide currently takes nine working days to check a pay slip or an appraisal report.
“That’s pretty widespread right now because lenders just struggle to keep up with the pace and the only way to turn the tap off is to change rates.”
Nationwide said, “Our current average timescales are what we would expect given the high demand we see in the market.
‘We update the time schedules on our website daily, so that everyone has an up-to-date overview of how long their application can take.’
Boulger adds that gilts — fixed-rate government bonds that are particularly sensitive to changes in interest rates — have had a few volatile months, with swings in both directions.
The yield on 10-year government bonds peaked at 2.62 percent 6 weeks ago and is 0.7 percentage point lower at 1.92 percent at the time of writing.
The fact that many lenders struggle with service means they have little incentive to lower rates to reflect the decline in borrowing costs, because the increase in business a lender would see by making itself more competitive will only solve their service problems. but would worsen,” he says.
Best Mortgage Rates and How to Find Them
Mortgage rates have risen significantly as the Bank of England base rate has risen rapidly.
If you want to buy, move or transfer your first home, it is important to get good independent mortgage advice from a broker who can help you find the best deal.
To help our readers find the best mortgage, This is Money partners with independent, free broker L&C.
U.S mortgage calculation powered by L&C, you can filter deals to see which ones match your home’s value and deposit level.
You can also compare different mortgage interest terms, from two years fixed to five years and ten years fixed, with monthly and total costs shown.
Use the tool on the link below to compare the best deals, taking into account both fees and rates. You can also start an application online on your own time and save it as you go.
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