The average five-year fixed mortgage rate has surpassed 6% for the first time since November, according to data from Moneyfacts.
Specifically, the average five-year deal now sits at 6.01%, and the average two-year fixed deal now stands at 6.47%, up from 6.42% on Monday.
It’s said the increase in rates for fixed-rate mortgages has pushed more homeowners to turn to variable rate deals, with UK Finance data suggests 13% of new mortgages taken out in the three months to April were variable as homeowners take a chance that mortgage rates will fall in the long-term.
What’s more, the rise in rates coincides with nearly 10% of mortgage deals being withdrawn from the market by lenders due to apprehensions about escalating interest rates. Moneyfacts reports that approximately 800 residential and buy-to-let deals have been withdrawn in total.
As a result, homeowners across the UK will be burdened with an additional £9 billion in interest payments between 2023 and 2024, according to the Centre for Economics and Business Research. Over the course of 2023 and 2024, 2.5 million homeowners will face the expiration of their fixed-rate deals, with an additional one million on variable-rate deals.
“In the ever-evolving landscape of the UK property market, one of the most prominent obstacles facing homeowners is surging mortgage rates,” said Chairman of Cornerstone Group International, David Hannah:
“The data from Moneyfacts showing that 5-year mortgage rates have breached the 6% mark will not be welcome to people searching for a mortgage.
This has turned more home buyers to variable rate mortgages, as they are taking a chance that mortgage rates will fall in the long-term. It is essential to thoroughly assess the long-term affordability and viability of mortgage options, considering the potential impact on household budgets and future financial plans.”
With regards to the pricing of certain standard variable rate (SVR) mortgages, Paula Higgins, chief executive of HomeOwners Alliance, said the rates – some of which are as high as 9.48% – are “nothing short of daylight robbery”:
“If predictions that the Bank of England is going to hike interest rates further are correct, we could see SVRs soaring even higher…
…The FCA needs to challenge this situation. Not only are the standard variable rates punitive, they are also completely inconsistent between lenders, making it harder for consumers to track.”
This comes as research earlier this week revealed one in 10 UK mortgage holders will not be able to afford their mortgage payments if the cost of living continues to rise.
According to Opinium, over half (56%) of homeowners said the current cost of living crisis will make it “more of a struggle” to pay their mortgage. Two in five (41%) will need to make cuts elsewhere to be able to pay their mortgage, and almost one in 10 (8%) will need to borrow money from family and friends.
Two fifths (40%) of mortgage holders currently have a fixed term mortgage due to end in the next two years. For those whose deal is coming to an end, if rates continue to rise as they are over two in five (43%) will need to make cutbacks to be able to cover their mortgage payments. One in seven (13%) will need to ask for a mortgage holiday and one in 10 (10%) would need to temporarily switch to an interest only mortgage. What’s more, 6% have said they would need to sell their home.
Almost two in five (37%) have paid, or would consider paying, to exit their mortgage deal early if it meant switching to get a better rate that is fixed for longer, and those considering this would be prepared to pay on average £1,864 to do so. Over a fifth (22%) have either already spoken to their mortgage broker about this or plan to get in touch to discuss their options in light of the cost-of-living crisis.
Alexa Nightingale, Head of Financial Services research at Opinium commented:
“With the mortgage market in disarray following the latest interest rate rise announcement from the Bank of England, many homeowners will be feeling deeply concerned about being able to afford their mortgages – particularly those who are coming to the end of fixed term deals in the near future.
Despite the recent announcement from Jeremy Hunt that lenders are to give mortgage-holders more flexibility to help deal with rising rates, including implementing a 12-month minimum term before repossessing homes and allowing borrowers to extend their loan term, many will feel this doesn’t go far enough.
Given how many consumers could struggle to cover their mortgage payments, or even have to sell their home if things continue the way they are, support from the government, as well as these options agreed with lenders, cannot some soon enough.”
