Average five-year fixed mortgage rate is above 6% – BBC News

  • By Faarea Masud & Lucy Hooker
  • Business journalist

image source, Getty’s image

The typical five-year fixed mortgage agreement now has an interest rate of just over 6%.

It comes after the Bank of England raised interest rates to a 15-year high of 5% last month, as it tries to bring inflation down.

Mortgage lenders have hiked rates and pulled deals recently, driving up fees for homeowners.

Prime Minister Rishi Sunak has urged homeowners to “hang on” to rising interest rates.

On Tuesday, the average rate for five-year fixed mortgages was 6.01%, according to financial information service Moneyfacts. The average two-year fixed deal is now 6.47%.

The last time it reached 6% was in November last year, when it rose sharply following then Chancellor Kwasi Kwarteng’s mini-budget.

But after a period of calm, they are rising steadily again in recent weeks.

However, while mortgage rates are rising quickly, savings account rates are not rising as fast.

With the average two-year mortgage rate now at 6.47%, the average easy-access savings rate is 2.45%, according to Moneyfacts. That is a difference of 4.02 percentage points.

A year ago, the typical rate on a fixed mortgage deal was close to 3%.

The rapid increase in rates left people like Rose Askwith facing sharp increases in their monthly payments.

The 38-year-old primary school teacher from Romsey in Kent will see his monthly payment rise from £550 to £1,200 if he introduces a variable rate by the end of July.

He applied for a vacation mortgage for August but was turned down, so is now racing to finalize a new flat deal.

The lowest he could find would keep monthly payments up to £800, but extend the term of his mortgage by 35 years.

“Right now my biggest fear is August,” he said. But even if he managed to get his hands on a new refinement, things were going to be tight.

image source, Rose Askwith


Rose Askwith said she was “in limbo” hoping for a new flat rate deal by the end of the month

“The scary thing is being a single mother and making sure the kids have a roof over their heads.

“Having to find an extra £300 to go towards the kids, or food, or funding my son at university. I had to say, ‘I can’t support you the way I want to.'”

The Bank of England has raised interest rates 13 times since December 2021.

The idea is that by making it more expensive for people to borrow money, and more beneficial for them to save, they will spend less and there will be less price increases.

But inflation – which measures the rate of price increases – remained high at 8.7% in May.

The prime minister has vowed to halve inflation by the end of the year, and has backed Bank of England rate hikes.

Bank rates are the main influence on mortgage rates. The expectation that banks may continue to raise interest rates, and that rates will remain higher for a longer time, has been reflected in mortgage financing costs, hitting new borrowers, and those seeking to remortgage.

Lenders have pulled out deals and put up rates in record time, while some have been inundated with requests and forced to withdraw or increase rates again.

More than 400,000 people will see their existing permanent deals expire between July and September, a relatively high number. Many face the prospect of having to budget for monthly payments that are hundreds of pounds more expensive than they are used to.

The recent rise in mortgage costs could also have an immediate impact on tenants who could face higher payments as landlords seek to recoup increased costs. Fewer rental properties may also become available as a result of landlords being blackmailed into selling their properties, according to the National Residential Landlords Association.

However, in an effort to help mortgage holders, banks and development agencies will offer more flexibility when it comes to payments. Borrowers will be able to make temporary changes to their mortgage terms, then will be able to return to their original agreement within six months, allowing some to have lower payments for a short time simply by paying interest on the home loan.

Rising interest rates and mortgage costs weighed on growth in Britain’s economy in April, but Chancellor Jeremy Hunt said Britain had “no alternative” but to raise interest rates in a bid to contain rising prices.

What happens if I miss a mortgage payment?

  • A shortfall equal to two months or more of payments means you’re officially in arrears
  • Your lender must then treat you fairly by considering any requests about a change in the way you pay, perhaps with a lower payment for a short period of time
  • Any settings you make will be reflected on your credit file – affecting your ability to borrow money in the future

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