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Mortgage rates rise sharply as the squeeze tightens

Updated: Apr 10


Discussion about Mortgage rate with the clients

According to new data, major mortgage lenders are raising the cost of home loans, with the average two-year fixed rate already approaching 6%.


According to Moneyfacts, a typical two-year fixed mortgage contract is now 5.75%, up from 4.74% on the day of the mini-budget.


Lenders have been scurrying to re-price mortgages as the fall of the pound sparked expectations of rising interest rates.


Mortgage rates have risen in tandem with interest rates since December.


The average two-year fixed rate in December was 2.34%.


Because fixed-rate mortgage interest rates do not alter during the length of the loan, rates are offered for new and renewing borrowers.


Lenders have also dropped hundreds of items in recent days, which may make it difficult for some consumers to secure a loan.


The recently re-priced deals have mostly come from major lenders looking for low-risk borrowers. Those with significant debt levels or who have skipped credit repayments may find their options are substantially more limited in the short term.


Brokers believe there is still money available for mortgage lenders to lend, but the days of ultra-low rates, which were common in the previous decade, have long passed.


"We didn't anticipate it to happen that quickly," one broker remarked.


How much could my mortgage cost?


The economy, the pound, and mortgages have had an 'absolutely wild' week.


Mortgage rates have been growing since the Bank of England began a seven-year streak of raising the Bank rate, the benchmark figure for interest rates. After the mini-budget triggered widespread expectations of a faster and greater climb in the Bank rate in the coming months, rates rose.


When determining rates for fixed-rate deals, lenders consider the long-term cost of borrowing as well as anticipated demand and strive to stay one step ahead of the Bank of England.


Every month, approximately 100,000 people come to the end of a fixed agreement and frequently refinance, while first-time buyers also join up for fixed terms. The 1.5 million homeowners with variable or tracker mortgages often see their costs climb directly to a rise in interest rates.


For a long time, a typical five-year fixed term was slightly cheaper than a two-year fixed deal, but both are now seeing prices jump dramatically.


"The regular lending regulations have changed," said Trinity Financial's Aaron Strutt.


The Halifax, the UK's largest mortgage provider, said its new, higher rates would be available on Wednesday.


"The new rates reflect the steady increase in mortgage market pricing in recent weeks," stated a Halifax spokesperson.


Other big lenders, like NatWest, Nationwide, and Virgin Money, have also raised their interest rates.


According to traders, NatWest did so on Sunday, a fairly rare day of the week to make a move, indicating the rate at which the market is changing.


Just over a week ago, a homeowner borrowing £200,000 on a 30-year mortgage may have been looking at a rate of 3.5% and a monthly repayment of £898. They are now more likely to face a 5.5% interest rate and a monthly repayment of £1,135.


As always, the longer-term trend for mortgage rates is unpredictable. People will have to examine how much they can borrow and what lenders believe they can afford.


During last week's turbulence, lenders removed products off the shelf at an unprecedented rate, with brokers reporting that packages were only available for a limited time as individuals swamped them and lenders with inquiries.


According to Moneyfacts, there were 3,961 bargains available on the morning of the mini-budget, compared to 2,262 at the start of this week, a 43% decrease. At the onset of the epidemic, products were pulled rapidly, but not to this extent.


Many of the transactions were withdrawn by smaller, more specialised lenders. This may add to the uncertainty for people with a more erratic borrowing history.

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