Five-Year Fixed Mortgage Rates Surpass 6% Average, Reflecting an Increase
The average mortgage rate for five-year fixed deals has climbed above 6%, indicating a notable increase, according to a report from a financial information company. Moneyfacts revealed that the average two-year fixed rate mortgage has also risen to 6.47%. Comparatively, the previous average for a five-year fixed rate stood at 5.97% just a few days earlier, while the two-year deal averaged at 6.42%.
This surge in rates for five-year fixed mortgages represents a high not witnessed since 21 November, which followed the turbulence caused by the government's mishandled mini budget under Liz Truss. Additionally, two-year fixed rates crossed the 6% mark around two weeks ago. These figures demonstrate a significant departure from the era of ultra-low interest rates. Less than two years ago, in October 2021, the average rate for a five-year fixed deal stood at a mere 2.55%.
The majority of mortgage holders are on fixed rate deals, with approximately 2.4 million of these deals set to expire between now and the end of 2024, according to UK Finance, the banking industry trade body.
The notable increase in mortgage rates since May, when inflation data indicated a slower-than-expected decline in the rate of price rises, has prompted market expectations of a higher base interest rate by the Bank of England. Lenders have factored in these expectations by adjusting the rates offered on their mortgage products, resulting in higher rates for individuals seeking new mortgage deals after their existing fixed-rate mortgages expire.
In conclusion, the average mortgage rates for five-year fixed deals have surpassed 6%, signalling a significant increase in borrowing costs for homeowners. This rise, as reported by a financial information company, reflects a departure from the era of ultra-low interest rates. The recent surge in rates is a response to market expectations of a higher base interest rate by the Bank of England due to inflation concerns. As a result, lenders have adjusted their mortgage rates, impacting individuals seeking new mortgage deals after their existing fixed-rate mortgages expire.
These developments have implications for millions of mortgage holders, with a majority being on fixed-rate deals. As the average rates continue to climb, borrowers will face higher borrowing costs, potentially affecting their financial planning and affordability.
The shift in mortgage rates highlights the importance of closely monitoring the lending market and staying informed about prevailing interest rates. Homeowners and prospective buyers may need to reassess their financial strategies and explore different mortgage options to navigate the changing landscape