Average mortgage rates rise above 6%

The mortgage market is experiencing a significant upward trend in interest rates, particularly for fixed-rate deals. Lenders are factoring in anticipated interest rate hikes by the Bank of England, resulting in higher average mortgage rates.

Financial information company Moneyfacts reports that the average mortgage rate has surged to 6.01% for a five-year fixed deal. In this article, we bring forth the key developments, explore the impact on borrowers, and offer insights into the reasons behind these changes.

The Current Situation

Research by Moneyfacts has shown that the average rate has grown to 6.01% for a five-year fixed mortgage in July 2023. This marks a surge from the previous average rate of 5.97% just a few days ago.

Similarly, the average two-year fixed-rate mortgage has climbed to 6.47%. These rates are the highest observed since 21 November. The rate hike is a response to the government's fiscal measures and the expected interest rate hikes by the Bank of England.

The Transition from Lower Rates

The current mortgage rates represent a notable departure from the years of historically low-interest rates. The average rate was as low as 2.55% for a five-year fixed deal in October 2021.

Most of the mortgage holders are on fixed-rate deals. UK Finance, the banking industry trade body, estimates that around 2.4 million fixed-rate mortgages will expire before the end of 2024, meaning millions will be in for a disappointing shock when the time comes to renew their mortgages.

Rising Mortgage Rates Since May

The escalation of mortgage rates began in May following the release of inflation data, which revealed a slower-than-expected decline in price rises. These findings prompted market expectations of a higher-than-anticipated surge in base interest rate by the Bank of England.

Because of this, lenders factored in this projected rise and adjusted the rates for their mortgage offerings. Homeowners who are renewing their fixed mortgage may be faced with rates 4% higher than what they had been paying before. (Source: Deedle Finance)

There can be higher monthly mortgage payments because of recent surge in rates, potentially impacting household budgets. Especially in these challenging times, homeowners and prospective buyers are being urged to carefully assess their financial situation and plan accordingly to mitigate the impact of these changes.

The Bank of England's Role

The Bank of England, in response to persistently high inflation, recently raised its base interest rate to an unexpected 5%. This decision was based on inflationary data and aimed to curb economic activity and slow down price rises.

Moreover, it is likely that the Bank of England's Monetary Policy Committee will convene soon to discuss another interest rate hike, potentially raising the rate to 5.5%.

Considering the current trajectory, mortgage rates are expected to remain high in the coming times. Borrowers and prospective buyers are advised to stay informed about market trends and carefully evaluate their options.

By working with mortgage brokers or financial advisors to navigate the changing landscape, borrowers can identify the most gainful mortgage deals.