A typical five-year fixed mortgage deal in the UK now has an interest rate of more than 6%, putting further pressure on borrowers who are hoping to buy a home or reaching the end of their existing deals.
Data from the financial information firm Moneyfacts shows the cost of a five-year deal for homeowners rose to 6.01% on Tuesday, up from 5.97% on Monday. It is the highest level since last November, after mortgage rates had been driven up by the mini-budget chaos of last autumn.
The average two-year fixed deal is now 6.47%, up from 6.42% on Monday.
Mortgage lenders have been increasing rates and withdrawing deals after the Bank of England raised interest rates by half a point to 5% last month in an attempt to curb high inflation.
Threadneedle Street has now raised interest rates 13 times since December 2021. But inflation – which measures the rate at which prices are rising – remained stubbornly high at 8.7% in May. The UK’s official inflation target is 2%.
The rapid rise in the base rate is bad news for millions of borrowers whose home loan deals are due to end in the coming weeks and months, as many currently enjoy a rate of less than 2%. The prospect of a huge jump in mortgage payments comes as Britons struggle to cope with higher food and energy bills.
Recently the consumer champion Martin Lewis said the mortgage “ticking timebomb” had exploded. The financial markets are predicting UK interest rates will hit 6% by the end of the year and remain at that level until next summer.
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After the last rate rise, Jeremy Hunt met Britain’s biggest lenders to discuss their response to the crisis. At the summit, lenders including NatWest, Lloyds, Santander and Barclays agreed to a new “mortgage charter”.
Among the main measures agreed to help consumers ride out the storm was that no home would be repossessed within 12 months of a first missed payment. Lenders also agreed that customers could seek advice without it affecting their credit score.
Struggling homeowners could switch to an interest-only deal for six months or extend their mortgage term and revert back within six months, the banks said. Neither option requires an affordability check or will affect their credit score.
Asked on Tuesday if the prime minister was concerned the average five-year fixed rate was now above 6%, his spokesperson said: “We’ve recognised this is a very difficult time for mortgage holders and indeed renters as well.
“The single biggest thing government can do is to work with the Bank of England in lockstep to reduce inflation, which is driving some of these high mortgage rates that we are seeing. In the short term, there is specific support available to mortgage holders. And we encourage anyone eligible to take up that help. And of course, we are already helping everybody by paying half their energy bills.”