Borrowers expecting mortgage rates to drop have hopes dashed
Major lenders have raised rates on new deals in recent days, leaving many borrowers needing to make a decision.
Borrowers hoping mortgage rates would fall have seen those hopes dashed
In recent days, almost all of the UK’s major mortgage lenders have announced higher home loan costs.
Analysts are unsure whether more increases are on the way, but they are urging anyone who needs a new deal to act quickly.
A borrower whose five-year deal is ending could face paying more than £5,000 extra a year on their next deal at a typical rate, if they borrow the same amount.
Many lenders let customers secure a new deal up to six months before their current one ends, with the option to switch if rates fall before the new deal starts.
“Borrowers expecting mortgage rates to drop in the coming weeks have had their hopes dashed,” said Rachel Springall, from financial information service Moneyfacts.
“It is still essential borrowers do not delay seeking advice to navigate the mortgage maze.”
Interest rates move according to the Bank of England’s base rate and market conditions.
For borrowers, the rate on a fixed mortgage stays the same until it expires, usually after two or five years, when a new deal is taken out to replace it. Most homeowners and buyers have this type of mortgage.
Since the Iran war began, global economic uncertainty has driven up the cost of deals.
Someone on a typical two-year deal borrowing £250,000 is likely to pay £120 more each month in mortgage repayments than they would have if they had secured the deal at the start of March, when the US-Israeli strikes began.
More recently, UK government borrowing costs have been climbing, which has had a knock-on effect on mortgage rates. That pressure continued in the UK’s latest debt sale on Tuesday.
Bank of England governor Andrew Bailey is expected to be questioned about the bond market turmoil by MPs on the Treasury Committee later on Tuesday.
The situation has led several major lenders to raise their rates over the past few days.
“The difficult bit is knowing whether this is the end or just the first round of increases,” said David Hollingworth, from broker L&C.
Aaron Strutt, of broker Trinity Financial, said: “Hopefully this will be the end of the rate rises for a while, but there are certainly no guarantees.
“Multiple small mortgage price rises add up and ultimately deter people from buying homes.”
Potential buyers and borrowers are being urged to get advice and plan ahead.
The share of mortgages where the loan is more than 90% of the home’s value has reached its highest point in 18 years.
The latest mortgage rate changes will be another setback for those coming off much cheaper five-year deals.
Even so, rates remain well below their recent peaks, and how much people can borrow, and at what rate, depends heavily on their individual circumstances.
Moneyfacts said that, as of Tuesday, the average rate on a new two-year deal was 5.65%. On a five-year product, the average was 5.70%.