‘Disastrous’: Average five-year fixed mortgage rate surges to six per cent
The average five-year fixed mortgage rate has broken the six per cent mark for the first time in three years after a fresh raft of lenders hiked prices.
The typical five-year agreement has hit six per cent, according to Moneyfacts, while the average two-year is a whisker behind at 5.98 per cent. It is the highest since September 2023 for the five-year and December 2023 for the two-year.
Swathes of lenders have hiked their mortgage rates over the last week following renewed inflationary pressures hitting global economies.
Barclays has hiked selected fixed rates on four occasions. HSBC, Lloyds, Nationwide, Natwest, Santander and TSB have all made three rounds of increases.
“Average fixed mortgage rates rising back to three-year highs will be disastrous news for borrowers,” Rachel Springall, finance expert at Moneyfacts, said.
The Homeowners alliance data has shown a monthly cost of a £250,000 loan fixed at six per cent for five years if £158 higher than the same-sized loan locked in at 4.94 per cent – the average at the start of February before the US-Iran war broke out.
Bracing for interest rate hike
Volatility in the market has been driven by the re-pricing of swap rates, which serve as a primary benchmark for pricing fixed-rate mortgages and reflect expectations for future interest rates over two, five, or 10-year terms.
The Bank of England has left rates unchanged at 3.75 per cent but top economists are pencilling in a hike on the horizon.
Lenders have hiked their rates as they re-asses how the Bank of England will respond to the developing shocks gripping the economy. The central bank’s monthly survey of firms’ price expectations, the Decision Makers’ Panel, last week showed price expectations becoming more jittery as costs from the energy price spike could be passed on to consumers.
One-year ahead inflation expectations increased to 3.3 per cent from 3.1 per cent in August. Longer-term inflation expectations and wage growth predictions also edged higher, according to research, reflecting the heap of price pressures building across the UK economy.
Interest rate-setter Dave Ramsden said last week that inflation risks have “tilted more to the upside” since the Bank’s last decision in September.
Ramsden, who voted alongside the majority in favour of keeping rates unchanged, said if “upside pressures on the inflation outlook continue to build, there could be a case for increasing Bank Rate.”