Five-year fixed mortgages top 6%

A typical five-year fixed mortgage deal now has an interest rate of more than 6%, after the Bank of England raised interest rates to a 15-year high of 5% last month – by Christian Leeming

 
Mortgage lenders have been increasing rates and withdrawing deals recently, driving up costs for homeowners; PM Rishi Sunak urged homeowners to ‘hold their nerve’ as the average rate for a five-year fixed hit 6.01%, with a two-year fixed at 6.47% according to the financial information service Moneyfacts. 

These rates last both topped 6% in November 2022, when interest rates rose sharply in the aftermath of then-Chancellor Kwasi Kwarteng’s mini-budget; after a period of calm they have climbed steadily again recently.

However, while mortgage rates have risen rapidly, the rates on savings accounts have not gone up as fast; Moneyfacts found that the average easy access savings account pays 2.45% – more than 4% less than the cost of a two-year mortgage now.

Bank bosses have been summoned by the Financial Conduct Authority to explain the low saving rates on offer.

A year ago, typical rates on fixed mortgage deals were closer to 3% and the rapid increase in rates is leaving people facing steep rises in their monthly payments; many are switching to interest only deals, or extending the duration of their loans.

The Bank of England has raised interest rates 13 times since December 2021 to try to bring down inflation; however, inflation remains stubbornly high at 8.7% in May, making the PM’s pledge to halve inflation by the end of the year, look exacting.

Bank rate is a key influence on mortgage rates, and further rate rises, and that they will stay higher for longer, are reflected in the funding cost of mortgages, hitting new borrowers, and those trying to remortgage.

Lenders have been pulling deals and putting up rates at short notice, while some have been inundated with demand and so forced to pull or raise rates again.

More than 400,000 people will see their existing fixed deals end between July and September, a comparatively high number. Many face the prospect of having to budget for monthly repayments that are hundreds of pounds more expensive than they have become accustomed to.