Now NO mainstream lender is offering a two-year fixed mortgage with less than 5% interest, as rates keep rising
- Five-year fixes offer better rates as interest rates expected to fall longer term
- Next week ‘huge’ for mortgages with inflation figures and base rate decision
There are no mainstream two-year fixed residential mortgage rates under 5 per cent left on the market, as interest rates on home loans continue to rise.
All major lenders have now increased their rates, leaving only Hanley Economic Building Society offering a two-year rate under 5 per cent. That mortgage is priced at 4.85 per cent.
The news comes as experts have warned of a ‘huge week’ for mortgages as the latest inflation rate is released next Wednesday, before any change to the Bank of England base rate one day later.
There is just one sub-5% two-year fixed rate deal left for home owners as interest goes up
Chris Sykes, technical director at broker Private Finance, said that fluctuations in swap rates – the financial mechanisms banks use predict where future interest rates will be and set their mortgage rates – were behind the rises.
‘As of today, a two year swap sits at 5.4 per cent and lenders will want to make a margin when lending, so it is no major surprise that we are seeing most two year money now being over 5 per cent,’ he says.
‘This is based on market expectations that base rate will go beyond 5 per cent at some stage soon, with some predictions saying base will go to 5.5 per cent.’
Skyes adds that as rates are expected to be cheaper further in the future, lenders are passing on some of that saving to borrowers by keeping more five-year deals below 5 per cent.
NatWest announced today that it is aligning its rates on two-year and five-year mortgages for first time buyers, purchase deals and those remortgaging, with deposits of 10 per cent or more.
Nicholas Mendes, mortgage technical manager at broker John Charcol, says: ‘By offering the same rate, the onus is on the homeowners and their appetite to risk.
‘Having a two-year fix offers stability, but allows you to review your options regularly. In the event fixed rates reduce you will have the benefit to move on to a new rate sooner.
‘A five-year fix offers longer term stability, but if rates reduce you could find yourself paying a higher rate for a longer period of time.’
The Bank of England is widely expected to raise the base rate next Thursday from its current level of 4.5 per cent, marking the 13th consecutive rise in just 18 months.
After a period of falling steadily since the start of the year, mortgage rates have risen rapidly over the past two weeks.
May’s higher than anticipated inflation figure of 8.7 per cent led to the market pricing in further base rate rises.
Increasing interest rates is the only took the bank has in its arsenal to try and curb ongoing inflation that is decimating household finances.
The average two-year fixed rate mortgage deal rose to 5.92 per cent today – up from 5.9 per cent yesterday and 5.49 per cent a fortnight ago, according to Moneyfacts.
The average five-year rate has risen to 5.56 per cent – up from 5.54 per cent yesterday and 5.17 per cent two weeks ago.
Homeowners with a £300,000 mortgage could see their annual payments rise by £13,200 by the end of the year compared with 18 months ago.
So far, the interest rate increases have added £9,564 a year – or £797 a month – for homeowners with a standard variable rate mortgage of £300,000, according to broker L&C Mortgages.
Around 1.6million homeowners have a SVR mortgage, which typically increase in line with the base rate.
