Mortgage rates are nearing the levels observed following the infamous mini-Budget led by Liz Truss last year. According to analysts MoneyfactsCompare, the average two-year fixed rate deal has reached 6.63%, just shy of the 6.65% peak recorded on October 20. This is the highest figure since November 2008, during the global financial crisis. Banks and building societies have been rapidly increasing mortgage rates, leading to the withdrawal and repricing of many deals. Since the beginning of June, rates on two-year fixed deals have risen by an average of 1.14 percentage points.
The Bank of England has significantly raised interest rates since December 2021, going from 0.1% to 5% at present. It is widely anticipated that the rate will climb to 6% by the end of the year in an attempt to curb inflation. This is expected to result in further increases in mortgage rates, resulting in more difficulties for homeowners. Stuart Cheetham, the CEO of MPowered Mortgages, predicts that the average two-year fixed rate deal will surpass 7% before the year concludes. He stated that mortgage rates will likely rise by an additional 20 to 30 percentage points in the next six to eight weeks, with further increases expected beyond that.
Unlike the short-lived market panic caused by Kwasi Kwarteng’s controversial mini-Budget last year, the current turmoil is expected to have a lasting impact. Lenders have been pulling mortgage products and adjusting their pricing in response to rising interest rate expectations. Knight Frank Finance reported a 41% increase in the value of new remortgages during May and June compared to the previous two months. Lenders are overwhelmed with applications and are being forced to reprice and withdraw deals from the market.
Virgin Money recently raised its two- and three-year fixed rate deals by 0.35 percentage points and its five-year rates by 0.3 percentage points. David Hollingworth of L&C Mortgages highlighted the rapid rate movements and borrowers’ desire to stay ahead of the curve. Most borrowers are opting for shorter-term deals, such as two-year fixes, in hopes that interest rates will decrease in the next 12 to 18 months. Ray Boulger of John Charcol noted that homeowners whose fixed rates are expiring in the next year will feel the most impact, while those with fixed rates until 2025 or beyond may avoid the worst rate increases.
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