Mortgage rates near 6% raising fears of ‘big reset’ for homeowners
Millions of homeowners face having to pay thousands more per year in mortgage payments by 2024, experts have warned.
Rates have risen around 0.5 percentage points in the last few weeks alone and an average new two-year fixed deal is now 5.9%, according to Moneyfacts.
City figures expect the market to undergo a ‘big reset’ over the next nine months as borrowers on cheaper deals come to the end of their terms.
According to Capital Economics, some 2.6 million people on rates under 3% will by paying above that by the end of next year.
A market insider told The Times that two-thirds of borrowers have yet to be affected by the shift.
Hunting for bargains is likely to become increasingly difficult, with the range of different mortgage products on offer continuing to fall by hundreds each month.
The cheapest two-year fixed deals currently available from major lenders ranging from 5% to 5.6%, while the typical standard variable rate – which lenders automatically fall onto when their fixed deal ends – has soared.
Warning of a ‘tidal wave’ of competition for good deals, David Hollingworth from London & Country told BBC Radio 4’s Today programme on Tuesday: ‘It’s been pretty relentless for the last couple of weeks. We’re back to that phase of you can’t hang around if you are looking at a fixed rate.’
The average two-year fixed rate has nearly doubled in the last 12 months, having reached just over 3% last May. In the same time, five-year deals have soared from 3.2% to 5.5%.
House prices have fallen by more than 3.4% over the last year – the largest annual decline in nearly 14 years – according to Nationwide.
But higher mortgage payments likely means that first-time buyers will continue to be priced out.
The government has ordered banks to protect borrowers from rising costs, though it does not have any legal power to change market prices.
A spokesperson for Rishi Sunak said: ‘The Chancellor has made clear his expectation that lenders should live up to their responsibilities and support any mortgage borrowers who are finding it tough right now.”
‘There do remain a large range of mortgage deals available to the public, but we know this current situation may be concerning for some homeowners and mortgage holders.’
The base interest rate – which has a major influence on high street mortgage rates – is unlikely to fall any time soon.
Now at 4.5%, experts believe it will be hiked further to 5.5% as the Bank of England believe it needs to stay high to fight the cost of living crisis.
Andrew Bailey, the Governor of the Bank of England, admitted inflation is ‘taking a lot longer than we expected’ to fall.
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