Nationwide have said mortgage rates on new fixed deals will rise by up to 0.45 percentage points to ensure they remain sustainable.
Nationwide said markets now think the Bank of England will have to raise rates to as high as 5.5% from the current 4.5% which is set to affect mortgage rates around the UK.
The average two-year fixed-rate mortgage on the market has a rate of 5.34% with the average five-year fix being 5.01%, according to Moneyfacts.
The Bank of England hiked interest rates by 0.25 percentage points earlier this month – pushing the benchmark rate to 4.5% up from 4.25% – representing the twelfth consecutive rise since December 2021. It means that a typical mortgage holder on the standard variable rate has seen their monthly bills increase by £35, according to AJ Bell.
The rise will be even stronger for the 1.5 million households with fixed mortgage deals set to expire this year. Homeowners with an average 2.58% fixed rate available in 2021 will see their mortgage payments increase by £13,000 a year if they have a £250,000 loan.
David Hannah, Chairman at Cornerstone Group International, discussed the effect of rising rates on the property market:
“The rise in mortgage rates due to inflation figures being stronger than expected is not welcome news for homeowners and in particular first-time buyers. However, I think that the housing market has shown huge resilience recently and I believe the outlook for the rest of the year to be positive. Prices are starting to stabilise which will start to give lenders confidence, of course they will adjust rates accordingly with interest rates, however if they see that inflation is going in the right direction, that will be key.
Buyers have a lot more available properties to choose than in previous years, thanks to an increase in supply which will cause less bidding wars and hopefully a more welcoming environment for first-time buyers, which makes for a much healthier market.”
Rightmove’s mortgage expert Matt Smith, said:
“It’s early days, but we’ve seen the first major lender significantly increase rates and it’s likely that we’ll see other lenders follow suit, though the full impact may take a few weeks to filter through. An increase in fixed-rates was likely to happen following the news earlier in the week that inflation had not fallen as much as markets had predicted. Subsequently the underlying costs of mortgages to lenders has increased and it appears they’re now starting to pass this on through their fixed-deals.
We’ve seen average rates creep up from where they were earlier in the week and we expect some further increases in the coming weeks. Though the upward trajectory of mortgage rates will understandably be concerning to those thinking of moving soon, it’s important to remember that right now rates are still lower than they were on average in February before edging down in March & April, and there are likely to be more twists and turns to come with the ongoing uncertainty over inflation.”
