Average two-year fixed mortgage deal now at highest rate since last year
A typical two-year fixed mortgage deal now has an interest rate of more than 6% for the first time since December.
Mortgage lenders have been putting up rates and pulling deals at a rapid rate in recent weeks, driving up costs for homeowners seeking new deals.
New figures show that the average price tag on a home coming on the market has dipped for the first time so far this year.
Across Britain, average new seller asking prices recorded a fall of £82 in June, marking the first monthly decrease seen in 2023, Rightmove said.
The fall took the average asking price to £372,812.
Rightmove said it is the first price drop at this time of year since 2017.
On average over the previous 10 years, it has seen an increase of 0.6% in asking prices at this time of year.
Recent high inflation and strong pay growth figures mean interest rates are now expected to rise by more than expected, pushing up borrowing costs.
Interest rates have risen 12 times since 2021 to try to slow price rises.
On Monday, the average rate for a two-year fixed-rate mortgage stood at 6.01% according to the financial information service Moneyfacts.
The interest rates on mortgages soared to 6.65% after last autumn’s mini-budget before calming slightly. But rates have climbed sharply again recently.
A typical five-year fixed rate is now at 5.67% compared with last year’s peak of 6.51%.
Steeper rates are meant to tame surging inflation but will leave tens of thousands of homeowners facing massive repayment hikes.
One estimate is that they will pay an average of £2,900 a year more from 2024.
Many families have fixed-rate deals and have not yet been hit by the rises.
However 800,000 will have to remortgage next year – at much higher rates – raising the risk of a recession.
‘It takes time for rate increases to filter through the system and the last thing people need is more fuel heaped on to the fire of rising monthly expenses,’ said Andrew Montlake of Coreco Mortgage Brokers.
He warned that higher rates would help push up wages in a tight labour market and ‘exacerbate’ inflation, defeating the Bank’s strategy.
‘They say the definition of insanity is doing the same thing over and over and expecting a different result, yet it seems the Bank of England will continue to blindly follow a course of action that could well do more harm than good,’ added Mr Montlake.
Tory MP Lucy Allan, who is also a chartered accountant, attacked the response to the ‘looming mortgage catastrophe’ from those in power, who she said were old and rich and less likely to have home loans.
In a post on her website yesterday, she asked whether controlling inflation was a price worth paying for higher interest rates, given the ‘hideous consequences’ for the housing market, the economy and those scrambling to sell homes.
She criticised the senior officials and ministers she said were ‘oozing complacency’ at the Bank and the Treasury.
And she warned: ‘While I will still tell my constituents to speak to their lender and get debt advice, if I were their financial adviser, my advice would be: sell now, while you still can, it’s only going to get worse.’
Charlie Bean, a former Bank of England deputy governor, said he ‘wouldn’t rule out’ interest rates hitting 6 per cent.
‘Rates will certainly go higher from where they are, reflecting the bad inflation and pay and market numbers that we’ve had over the past month,’ he told Sky News.
Sir Charlie said it was ‘tricky’ for the Bank to bring down inflation while avoiding tipping the economy into recession. It has been criticised for being too slow to start raising interest rates and for continuing to ‘print money’ for too long.
Tim Bannister, Rightmove’s director of property science, said: ‘Average new seller asking prices, the first and leading indicator of new trends in the market, have dropped slightly this month, signalling that the belated spring price bounce has quickly turned into an earlier-than-usual summer slowdown.
‘We expect asking prices to edge down during the second half of the year which is the normal seasonal pattern, and while we sometimes re-forecast our expectations for annual price changes at this time, current trends suggest that our original forecast of a 2% annual drop in asking prices at the end of 2023 is still valid.
‘Agents report that new sellers are sitting in two camps – those who still have overoptimistic price expectations following the buoyant pandemic market, and those who have adapted to the new conditions and are coming to market with a competitive price.
‘Sellers who price competitively are much more likely to find a suitable buyer quickly before their home appears stale, and they can often then negotiate on price on any onward purchase.’
Expectations that interest rates will stay higher for longer have been reflected in the funding cost of mortgages, hitting new borrowers, and those trying to remortgage.
‘Lenders have been pulling deals and putting up rates at short-notice, while some have been inundated with demand and so forced to pull or raise rates again.
More than 400,000 people will see their existing fixed deals end between July and September, a comparatively high number.
Many face the prospect of having to budget for monthly repayments that are hundreds of pounds more expensive than they have become accustomed to.
The base rate, set by the Bank of England’s Monetary Policy Committee and currently at 4.5%, will be reviewed on Thursday and is widely expected to increase for the 13th time in a row.
The latest official inflation data on how fast prices are rising will be published on Wednesday.
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