July 2023
The average five-year, fixed-rate mortgage has hit 6 per cent for the first time since November as banks and building societies continue to increase rates.
Five-year fixed rates have rose from 4.97 per cent to 6.01% between the start of May and today, according to the financial data analyst Moneyfacts, adding £1,488 a year to repayments on a typical 25-year mortgage worth £200,000.
It is the first time the average rate has reached 6% since November 21, in the aftermath of the Liz Truss mini budget that sent borrowing costs soaring. Before that, rates had not been so high since December 2008, in the heat of the financial crisis.
Rates have jumped over the last couple of months due to consumer price inflation that has gone far beyond expectations. According to the Office for National Statistics the rate has remained stuck at 8.7 per cent in successive months.
This has fuelled expectation that the Bank of England will again increase the base rate, presently 5 per cent, and keep it higher for longer. The base rate has risen 13 times since an all-time low of 0.1 per cent in December 2021. These expectations of future Bank of England rates, called swap rates, are used by banks to price fixed-rate mortgages.
Will Rates start to fall anytime soon?
Last week the Bank governor, Andrew Bailey, said rates were likely to stay higher for longer because of “more persistent” inflation. Hope of a fall remains because so many of the big banks have pushed their mortgage rates up so much.
The majority of the big high street lenders have already made large increases to their rates which means they currently sit well above the best buys in the market place. Swap rates need to become less volatile for the mortgage market to become more affordable however that is unlikely to happen until inflation starts to take a downward trajectory.
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