Key facts
- Nearly all major UK mortgage lenders have increased rates on home loans.
- Borrowers whose deals are ending face potentially paying over £5,000 more annually.
- Global economic uncertainty, linked to recent geopolitical events, is driving up mortgage costs.
- The average rate for a new two-year mortgage deal is 5.65%, and 5.70% for a five-year deal.
- The proportion of mortgages where the loan is more than 90% of the home's value has reached an 18-year high.
Borrowers in the UK hoping for a decrease in mortgage rates have seen those expectations dashed as nearly all major lenders have recently announced increases to the cost of home loans. Analysts are uncertain if further hikes are imminent, but are advising individuals needing a new mortgage deal to act promptly.
For someone whose five-year fixed mortgage deal is ending, the cost of a new deal could be more than £5,000 higher per year, assuming they borrow the same amount. Many lenders permit borrowers to secure a new deal up to six months before their current one expires, with the option to switch to a lower rate if available before the new deal begins.
Rachel Springall, from Moneyfacts, noted that borrowers' hopes for falling rates have been disappointed and stressed the importance of seeking advice. The interest rate on a fixed mortgage remains unchanged until its expiry, typically after two or five years, at which point a new rate must be chosen. The majority of homeowners and buyers opt for this type of mortgage.
Global economic uncertainty, exacerbated by recent geopolitical events such as the Iran war, has contributed to rising deal costs. A borrower on a typical two-year deal, borrowing £250,000, could face monthly repayments £120 higher than if they had secured the deal at the start of March. Bank of England Governor Andrew Bailey is expected to address this bond market volatility when questioned by MPs.
Several major lenders have raised their rates in recent days. David Hollingworth, a broker at L&C, expressed uncertainty about whether these increases mark the end of the trend or just the beginning. Aaron Strutt of Trinity Financial echoed this sentiment, hoping for a pause in rate rises but acknowledging the lack of guarantees, noting that cumulative small increases can deter potential homebuyers.
Potential buyers and existing borrowers are strongly encouraged to seek professional advice and plan ahead. The proportion of mortgages where the loan-to-value ratio exceeds 90% has reached its highest point in 18 years. These recent mortgage rate adjustments are a significant setback for those coming off considerably cheaper five-year deals. However, current rates remain below their recent peaks, and the amount individuals can borrow, and at what rate, is highly dependent on their personal financial circumstances. As of Tuesday, Moneyfacts reported the average rate for a new two-year deal at 5.65%, and 5.70% for a five-year product.