Average two-year fixed mortgage rates have risen above 6%, according to Moneyfacts as the average five-year fixed rate mortgage has increased to 5.67%.
Adding to this, the Resolution Foundation has predicted that the average two-year fixed rate deal will hit 6.25% later this year, leaving homeowners looking to remortgage paying an average of £2,900 more from 2024, with 800,000 homeowners set to be affected.
This comes as the prime minister, Rishi Sunak, declined to back extra support for mortgage holders despite increasingly costs stating the priority is to bring inflation down. In light of this, David Hannah, Chairman of Cornerstone Group International – the UK’s leading property tax expert – assesses how this is set to affect homeowners across the UK.
The rise in rates comes amidst nearly 10% of mortgage deals being taken off the market by lenders due to concerns about increasing interest rates according to Moneyfacts, the figures indicate that approximately 800 residential and buy-to-let deals have been withdrawn. Adding to this, NatWest and Nationwide, two of the UK’s largest mortgage lenders, announced last week that they will increase interest rates by as much as 0.45% while removing some of their mortgage products from the market altogether.
Homeowners throughout the UK will now have to spend nearly an extra £9 billion in interest over 2023 and 2024 as they are forced to refinance at rates that are double what they used to be, according to the Centre for Economics and Business Research.
In total, 2.5 million homeowners will come to the end of fixed-rate deals across 2023 and 2024, while a further one million are on variable-rate deals. Resolution Foundation claims that annual repayments are on track to be £15.8bn a year higher by 2026 compared with prior to when the Bank started its rate-raising cycle in December 2021.
The UK lending market continues to experience turbulent times, influenced by data revealing a slower-than-expected decline in inflation. This situation has led to predictions of a potential interest rate hike by the Bank of England, with estimates suggesting a rise from the current rate of 4.5% to as high as 6%.
David Hannah, Chairman at Cornerstone Group International said, “The announcement that mortgage rates have officially risen above 6% is unwelcome news for homeowners, especially first-time buyers and those coming to the end of an existing deal. The government need to consider taking extra measures to aid homeowners who are struggling with their mortgage payments.
“Homeowners who are coming to the end of their fixed-rate deals will be looking at refinancing with rates that are more than double what they were a couple of years ago. If you’re finishing a deal with a rate of 1.5-2% and you’re going onto a rate above 5% that’s going to have a big impact on your budget.
“This means many homeowners will be unable to afford the extra interest and could even result in people losing their homes. This will also add further pressure to a rental market which has already registered record prices this year. I think the UK property market is currently on a cliff edge and the upcoming interest rates announcement is set to further exacerbate the situation.”