Yahoo Finance UK mortgage rates hit 15-year high of 6.6%
Record rise piles pressure on homeowners with millions of mortgage deals set to expire before the end of next year
Mortgage rates have reached a 15-year high, surpassing the levels seen last autumn after the chaotic Liz Truss mini-budget.
A typical two-year deal has risen to 6.66%, up from 6.63% on Monday, according to data provider Moneyfacts.
This is the highest level since the 2008 financial crisis and above the 6.65% peak rates hit on 20 October 2022, amid the turmoil that followed Truss and Kwasi Kwarteng’s budget.
The latest increase will pile pressure on homeowners, with millions of mortgage deals to expire before the end of next year.
The average five-year fixed mortgage rate rose to 6.17% on Tuesday from 6.13% on Monday.
Read more: Mortgage rates: What the banks are offering following interest hikes
Moneyfacts said there were fewer deals available, a total of 4,344 residential mortgage products, down from 4,631 on Monday.
The figures come as data from the Office for National Statistics showed that wages grew at record pace in the three months to May, bolstering expectations for further interest rate rises.
Traders are betting that the Bank of England will raise borrowing costs to a 25-year high by early next year, which could push average mortgage rates past 7%.
Charlotte Nixon, mortgage and financial planning expert at Quilter, said:“The chaos in the mortgage market is hitting house prices and this is going to cause some uncertainty over the rest of the year as servicing costs become harder to manage and affordability is tested to its limits.
"For those who have a fixed rate deal ending in the next six months, the message is clear — act now or you could face exorbitant costs on the standard variable rate that you will default on to."
As rising mortgage rates risk pushing homeowners into arrears, chancellor Jeremy Hunt recently held a summit with mortgage lenders and a new mortgage charter was agreed to support those who are struggling.
Lenders will be able to offer borrowers a switch to interest-only payments for six months, and an extension to their mortgage term to reduce their monthly payments, with the option to switch back within six months.
However, the number of homeowners in financial difficulty will rise in the coming months as much higher mortgage rates hit homeowners coming to the end of fixed rate deals, lenders have warned.
Lenders told MPs that the number of homeowners falling into arrears has so far been below the levels seen before the pandemic, but the worst is still yet to come as mortgage rates continue to climb.
Speaking to the Treasury Select Committee on Tuesday, Charlotte Harrison, interim chief executive (home financing) of Skipton Building Society, said: “I would expect in this higher interest rate environment that we’ll see more and more financial stress than we’d have done to date.”
Read more: Interest rates: When will UK’s mortgage misery end?
Andrew Asaam, homes director at Lloyds Banking Group, says Lloyds (LLOY.L) have been phoning fixed-rate customers who are potentially high risk to offer them the chance to extend loan terms or lock in a deal now.
Customers on variable-rates are told if they could save by moving to another product.
Rising mortgage rates mean homeowners will face a sharp increase in payments when their existing fixed mortgages expire, MPs hear.
Bradley Fordham, mortgage director at Santander UK (BNC.L), told MPs that, currently, mortgage rates are between 5.5% and 6.5%. At 6%, a customer coming off a 2.3% rate will face a £350 per month increase in mortgage payments.
Henry Jordan, home commercial director at Nationwide (NBS.L), said some customers are put off from moving to an interest-only deal - an option in the mortgage charter — because they are worried about the impact on their credit file — so just 100 customers per month currently choose it.
Extending a mortgage term can take about £100 off the increase in monthly payments when homeowners refinance, while switching to interest-only means homeowners can make lower payments than on their previous fixed rate deals, Jordan said.
But he added: “That remains true until you get to somewhere between 6.25% and 6.5%. That might be the kind of tipping point at which options like interest-only won’t be sufficient to offset the increase in payments that the customers will see.”
Watch: How much money do I need to buy a house?
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