Homeowners are bracing themselves for more financial hardship as mortgage rates reach levels not seen since January, following a wave of major lenders withdrawing or repricing fixed-rate deals.
According to the latest data from analysts at Moneyfacts, the average cost of two and five-year fixes has surged dramatically since Friday. The average two-year deal has reached a staggering 5.72%, marking the highest rate since January 9. Similarly, the average cost of a five-year fix has hit 5.41%, the highest since January 16.
These recent increases come just ahead of a significant influx of home loans that will be remortgaged over the next few months. Swetha Ramachandran, an investment manager at GAM Investments, explained on BBC Radio 4’s Today programme that an estimated 1.3 million households will need to refix their rates this year. Additionally, she emphasized that in the second half of the year, around 640,000 people will have their deals come to an end.
It’s worth noting that many of these mortgages were initially taken out during the Covid pandemic when stamp duty was reduced.
The surge in mortgage rates can be attributed to inflation proving more persistent than anticipated. Although the headline CPI rate fell from 10.1% in March to 8.7% in April, it was still lower than expected by the City.
Sarah Olney, the Liberal Democrat Treasury spokeswoman and MP for Richmond Park, criticized the government for its “gross economic incompetence” and the burden it has placed on families with steep mortgage bills. In response, a spokesperson for the Treasury pointed out that central banks worldwide are raising interest rates collectively to combat high inflation caused by the pandemic and Putin’s war.
However, some of the blame for the rise in mortgage bills is being placed on former Chancellor Kwasi Kwarteng’s disastrous “mini-Budget” during Liz Truss’s short premiership.
Meanwhile, new figures from trade association UK Finance reveal that as interest rates rise, approximately one in five first-time buyers are opting for mortgages lasting more than 35 years. In March alone, a record-breaking 19% of first-time buyers secured mortgages with durations of at least 35 years. This proportion is the highest recorded since April 2005.
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