UK homebuyers face highest two-year fixed mortgage rates since September crisis

Last week, the interest rates for British homebuyers who opt for a two-year fixed-rate loan exceeded 6%, reaching the highest level since the time following the “mini-budget” crisis in September. This increase in borrowing costs further contributes to the pressures affecting the housing market. Over the past few weeks, British lenders have significantly raised interest rates due to persistent high inflation, which has led investors to anticipate the peak of the Bank of England rates to be higher.

According to financial data company Moneyfacts, the average interest rate for a new two-year fixed-rate mortgage reached 6.01%, marking the highest level since December 1. Similarly, the average interest rate for a five-year fixed-rate mortgage rose from 5.62% to 5.67%.

Majority of homebuyers in the UK opt for mortgages that offer a fixed interest rate for either two or five years, after which they transition to a variable rate or choose to refinance at a new fixed rate.

Mortgage brokers have reported that interest rates vary significantly around the averages provided by Moneyfacts, depending on factors such as borrowers’ creditworthiness and the size of the loan. It is safe to say, rates are increasing.

In October, two-year mortgage rates reached a peak of 6.65% due to a surge in government bond yields, triggered by market concerns regarding the additional borrowing required for the tax cut plans proposed by then-Prime Minister Liz Truss.

The full impact of the increased borrowing costs on mortgage holders is yet to be fully experienced. According to UK Finance, a trade association for the finance and banking industry, approximately 800,000 fixed-rate mortgages will need to be refinanced in the second half of this year, followed by an additional 1.6 million in 2024, out of a total of around 9 million residential mortgages. The Resolution Foundation, a think tank, has estimated that the average mortgage holder who refinances next year will incur an additional expense of £2,900 ($3,700) annually.

The Impact of increasing mortgage rates is already being observed in house prices, as reported by property website Rightmove, which noted a decline in asking prices in early June for the first time in six years. Typically, June experiences a seasonal upswing in house prices. While economists surveyed by Reuters last week predicted that the Bank of England’s Bank Rate would reach its peak at 5% in August or September, up from the current 4.5%, investors anticipate further rate increases beyond that.

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UK homebuyers face highest two-year fixed mortgage rates since September crisis

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