The average rate on a new two-year fixed mortgage has edged closer to the 6% threshold, as Nationwide became the latest big lender to push through a significant increase in the cost of its deals.
Borrowers are braced for more pain, with the Bank of England expected to raise rates for the 13th meeting in a row next week. The Bank’s former governor Mark Carney has predicted interest rates would remain high “for the foreseeable future”.
Moneyfacts, the financial data provider, said the average rate on a new fixed-rate deal lasting for two years had nudged up to 5.92% – from 5.9% on Wednesday. Meanwhile, the typical rate on a new five-year fix has crept up to 5.56%, from 5.54% 24 hours earlier.
Nationwide’s broker arm has revealed it is increasing its new fixed rates by up to 0.7 percentage points. The pricing will take effect on Friday and cover products for new customers, those switching between mortgages, those looking to borrow more and customers moving home.
The seemingly unrelenting rise in the cost of new deals is adding to pressure on would-be homebuyers and those whose fixed-term deals are expiring.
It is fuelling worries that the UK could be heading for a rerun of last autumn’s turmoil, when the September mini-budget sparked chaos in the financial markets and led to thousands of mortgage deals being pulled and repriced sharply upwards.
The average new two-year fixed rate was 4.74% on 23 September, the day of the mini-budget, but by the start of November it had climbed to 6.47%. In the months that followed, rates gradually fell back as markets stabilised – until they were spooked once again by a smaller than expected drop in the UK inflation rate at the end of May.
The data reflected rapid movement in the market as banks and building societies continued to withdraw available home loans, often at very short notice, before returning with higher-priced fixed-rate deals. Lenders are using repricing to limit the number of new customers before rates rise again, while remaining competitive.
The Bank of England meets on Thursday next week, when it is expected to lift the base rate from the current 4.5% level, with some investors predicting a rise to as much as 5%.
HSBC has increased its lending rates twice in the past week. Coventry building society’s broker arm is launching more expensive deals on Friday.
Speaking to ITV on Wednesday evening, Carney, who led the Bank of England from 2013 to 2020, predicted there would be no let up for several years.
“One of the things that governments in the UK and Canada elsewhere have to get used to now is that they are going to be paying higher rates of interest for their debt for the foreseeable future.
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“Not just measured in 12 months, 24 months, but actually, the big tectonic shifts in the global economy mean that we are likely to have higher longer-term interest rates for a period.”
On Thursday morning, the money markets were predicting interest rates could be near 5.75% by the end of this year.
However, Laith Khalaf, the head of investment analysis at the platform AJ Bell, said “a few hawkish comments from the Bank of England, or some more ugly inflation data, could easily tip those expectations up to 6%”.
Money market movements were “undoubtedly bad news for anyone taking out a mortgage at the moment”, Khalaf said, but last September’s widespread market panic after a disastrous mini-budget under the then prime minister, Liz Truss, “hasn’t set in. Not yet, in any case.”
Thursday’s typical 5.92% rate for a new two-year fixed home loan means someone taking out such a deal now faces paying £936 more a year than someone who signed up to an equivalent deal at the start of May, when the figure was 5.26%, based on a £200,000 mortgage.
The extra payment soars to almost £4,000 a year when compared with someone who took out a typical two-year fix priced at just over 3% in May last year.
