Mortgage Rates Surge News: Average Two-Year Fix Exceeds 6% for the First Time
Matthew Pigrome, Principle of Mortgage321 - 19th June 2023.
I wanted to bring your attention to the recent developments in the mortgage market that have significant implications for homeowners and prospective buyers.
Mortgage rates have been on the rise, reaching a critical milestone as the average two-year fixed mortgage deal now carries an interest rate of over 6%. This is the first time we have seen rates at this level since December, signaling a challenging time for borrowers seeking new mortgage deals.
Lenders Push Up Rates:
In recent weeks, mortgage lenders have been rapidly increasing rates and withdrawing deals, which has resulted in higher costs for homeowners in search of favorable mortgage terms. Factors such as heightened inflation and robust pay growth have led to expectations of larger-than-anticipated interest rate hikes, consequently driving up borrowing costs.
Rishi Sunak, has seemingly ruled out providing additional support for homeowners. In an interview on ITV's Good Morning Britain, the prime minister emphasised his priority of halving inflation by year-end to alleviate concerns about mortgage rates. While this aim aims to maintain low costs and interest rates for individuals, it raises questions about the immediate assistance available to those grappling with increased mortgage expenses.
Current Mortgage Rate Landscape:
According to financial information service Moneyfacts, the average rate for a two-year fixed-rate mortgage stands at 6.01% as of Monday. We witnessed interest rates soar to 6.65% following last autumn's mini-budget, only to moderate slightly afterward. However, rates have recently experienced a sharp ascent. In comparison, the typical five-year fixed rate now stands at 5.67%, a marginal decrease from last year's peak of 6.51%.
Implications for Borrowers and the Economy:
The surge in mortgage costs poses a significant concern as it may potentially push the UK into a recession. The expectation of prolonged higher interest rates has translated into increased funding costs for mortgages, affecting both new borrowers and those looking to remortgage. Lenders are swiftly pulling deals and raising rates, leaving many individuals facing the prospect of significantly higher monthly repayments than they are accustomed to.
Sir Howard Davies, a former deputy governor of the Bank of England, advocates for a "wait and see" approach to evaluate the full impact of the previous interest rate hikes. He notes that most mortgage borrowers are on fixed-rate deals, limiting the immediate effect on consumer spending. Cabinet minister Michael Gove, on the other hand, highlights that mortgage relief measures are under review but cautions against using public funds, as it could increase public debt and further raise interest rates.
The Path Ahead:
The Resolution Foundation warns that the average cost of remortgaging next year will rise by £2,900, and they anticipate the average two-year mortgage deal to remain above 4.5% until the end of 2027, resulting in a prolonged "mortgage crunch."
Against this backdrop, property website Rightmove reports a slight dip in the average asking price for properties entering the market, attributing it to mortgage rate increases and high inflation impacting households' financial situations.
Inflation and the Bank's Response:
The UK continues to grapple with stubbornly high inflation, with the annual rate reaching 8.7% in April, well above the Bank of England's 2% target. In response, the Bank has resorted to raising interest rates, aiming to reduce consumer spending and curb rapid price increases. However, this move presents challenges for businesses seeking to borrow money for expansion.
Stay Informed: Stay updated on the latest developments by following our updates and seeking expert advice. The official inflation data will be published this Wednesday, shedding further light on the economic landscape.
Remember, being well-informed is key to navigating the ever-evolving mortgage market and making informed decisions. We will continue to monitor the situation closely and provide insights to help you navigate these challenging times.