Mortgage rates have continued to rise this week with the average five-year fixed rate now soaring above 6%.
Coventry Building Society, Barclays and Virgin Money are amongst the lenders who have hiked rates in the last week. Meanwhile, Halifax has also increased rates for selected remortgages and product transfers, which is where borrowers switch to a mortgage from the same lender.
Whilst the average five-year fixed rate was 6.02% today (Wednesday 5 July) the typical rate for a two-year fixed rate mortgage is now 6.51%, according to data from Moneyfactscompare.co.uk.
It means borrowers remortgaging now will face higher repayments when they fix into a new deal than they would have done a month ago.
Nicholas Mendes, mortgage technical manager at broker John Charcol, said the last time five-year fixed rates reached these heights was in the fallout which followed the mini-Budget in September last year.
He explained lenders were continuing to hike their prices in response to increasing swap rates – the gauge used by brokers to set mortgage rates. They have, according to Mendes, increased steadily over the last fortnight.
“The majority of the big high street lenders have already made substantial increases to their rates which means they currently sit outside of the best buys,” he said.
“Fingers crossed that rates might stop rising soon if swap rates calm down, although I still think we may see further increases in the future if there isn’t substantial progress in bringing down inflation.”
How to do fixed rate mortgages compare to variable rate deals?
An average two-year tracker mortgage is currently offering a rate of 5.98% according to Moneyfactscompare.co.uk. Meanwhile, anyone reverting to their lender’s standard variable rate (SVR) rather than remortgaging will be paying 7.67% on average at the moment.
Mortgage experts are mostly warning borrowers considering sticking with their SVR that this route is expensive – even more so than remortgaging. Therefore, it should be something to consider carefully with guidance from a mortgage adviser.
What should borrowers who are due to remortgage do next?
For some borrowers switching to a tracker, which generally have no early repayment charges, may be the best option as this will allow them to remortgage on a flexible basis until rates come down. But for others this may not be suitable as trackers will rise in price each time the base rate increases.
For all borrowers, however, whatever the circumstances the advice is the same – be prepared. You can now fix into a mortgage deal up to six months before your current mortgage contract ends so if you have a remortgage deal due up to the end of December or start of January you can begin looking at options now.
Karen Noye, mortgage expert at Quilter, said: “Those still looking to secure a deal during this turbulent time will need to be well prepared with all the relevant documentation to hand to ensure you can get it to your lender or mortgage adviser as quickly as possible.
“Lenders have been withdrawing products with little to no notice, so acting quickly will be the best way to avoid losing a deal and potentially having to face higher costs when the same product is put back on the market at a higher rate.”
