In the current market, mainstream lenders are no longer offering two-year fixed mortgage rates with an interest rate of less than 5%. This is due to the continuous rise in interest rates on home loans. Hanley Economic Building Society is the only lender still offering a two-year fixed rate under 5%, specifically at 4.85%.
The upcoming week is expected to have a significant impact on the mortgage market as the latest inflation rate will be released on Wednesday, followed by a decision on the Bank of England base rate the next day. Chris Sykes, a technical director at broker Private Finance, explains that the rise in rates is influenced by fluctuations in swap rates, which are used by banks to predict future interest rates and set their mortgage rates. Currently, a two-year swap rate stands at 5.4%, and lenders want to maintain a margin when lending, which is why most two-year mortgage rates are now above 5%. There are predictions that the base rate will go beyond 5% in the near future.
However, rates are expected to be cheaper further into the future, leading lenders to offer more five-year fixed rate mortgage deals below 5%. As an example, NatWest has announced that it is aligning its rates on two-year and five-year mortgages for first-time buyers, purchase deals, and those looking to remortgage, with deposits of 10% or more.
Nicholas Mendes, a mortgage technical manager at broker John Charcol, explains the considerations between a two-year fix and a five-year fix. A two-year fix provides stability but allows for regular review of options. If fixed rates decrease, borrowers can take advantage of a new rate sooner. On the other hand, a five-year fix offers longer-term stability, but if rates decrease, borrowers may end up paying a higher rate for a longer period of time.
The Bank of England is widely expected to raise the base rate to 4.5% next week, which would mark the 13th consecutive rise in just 18 months. Mortgage rates have been steadily increasing over the past two weeks, fueled by the higher-than-anticipated inflation figure of 8.7% in May. Increasing interest rates is the bank’s attempt to curb ongoing inflation, which is impacting household finances.
Currently, the average two-year fixed rate mortgage deal is at 5.92%, while the average five-year rate is at 5.56%. Homeowners with a £300,000 mortgage could see their annual payments rise by £13,200 compared to 18 months ago. So far, the interest rate increases have added £9,564 a year for homeowners with a standard variable rate mortgage of £300,000.
For borrowers who need a mortgage or are considering remortgaging, it is advisable to explore options as soon as possible. The best way to compare mortgage costs and find the right deal is to speak to a reputable mortgage broker. It’s important to be aware that rates can change quickly, so taking prompt action and securing a rate is crucial.
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