buy-to-let mortgage fixed rate mortgages

Are fixed rate mortgages going up or down?

The Bank of England once again raised its base rate yesterday for the 12th time in a row, up to 4.5%, but what’s actually happening with fixed rate mortgages right now?

Towards the end of last year, in response to both the mini budget and rising inflation causing the Bank of England to up interest rates, fixed rate mortgages surged compared to their historic low levels of the past several years.

Between May 2022 and December 2022, the average two-year fixed rate mortgage had increased from 3.03% to 5.35%, affecting thousands of households who remortgaged at this point. And with every incremental base rate rise, mortgage holders are waiting with baited breath to see the effects on their borrowing.

However, while yesterday’s news may not be welcome to the majority of borrowers, the general consensus is that fixed rate mortgages will be the least affected. By contrast, those on standard variable rates and tracker mortgages may see a swift increase in their monthly payments.

A competitive market

Towards the end of last year, many mortgage rates were on an upwards trajectory, including fixed rate mortgages. Since then, though, both competition and confidence have returned to the mortgage market, and rates on the whole have actually been falling, despite Bank of England base rate rises.

As Paula Higgins, CEO of HomeOwners Alliance, points out: “For new mortgage hunters, this latest increase is unlikely to see mortgage rates shoot up any time soon as a result.

“The market remains competitive and we’re seeing new products coming to the market, not least Skipton’s 100% mortgage – another indicator that lenders are feeling confident.”

The latest figures from Moneyfacts show that lenders’ rates have continued to come down over this past month, even though lenders were aware of the chances of the Bank of England choosing to raise interest rates further. According to Moneyfacts’ Rachel Springall, there is more reason than ever to lock into a fixed rate.

“The latest base rate rise will be disappointing news for borrowers who have been unable to refinance onto a fixed rate mortgage, yet another blow to their monthly outgoings amid a cost of living crisis,” says Springall.

“Those aiming to lock into a fixed rate mortgage for peace of mind will find average rates have come down slightly over the past month, but as rates average around 5%, this may still be unaffordable for some.

“The average five-year fixed mortgage rate is lower than the two-year fixed, which may encourage prospective borrowers to lock down their rate for longer. However, fixed mortgage rates could be unpredictable in the months to come, so some borrowers may even sit on their revert rate waiting for cheaper deals to surface.

“Whether fixed rates are destined to remain volatile or not, there is still an incentive for borrowers to fix, as the consecutive base rate rises have pushed the average Standard Variable Rate (SVR) to its highest point since 2007.

“A rate rise of 0.25% on the current average SVR of 7.37% would add approximately £780* onto total repayments over two years.”

Fixed rate mortgages

Moneyfacts has analysed the various rates available across the market as of the beginning of this month, compared with at various points in the past to look at how trends are progressing.

Back in May 2018, five years ago, the average standard variable rate (SVR) was 4.73%. This fell to its most recent low of 4.40% in December 2021, but has since climbed. In April, it hit 7.30%, before rising to its current high of 7.37% – significantly more than average fixed rate mortgages.

By contrast, the cheapest deals available at the moment are on five-year fixed rate mortgages, where the average is currently 4.97%. This is down from 5.05% last month, but has risen from 3.17% in May last year.

Those wanting to lock in for the longest-term security will find average rates of 5.00% for a 10-year fixed rate, up very slightly from April’s 4.99%. This time last year, you could secure a 10-year fixed rate at an average of 3.21%.

Finally, the analysis shows that two-year fixed rate mortgages are currently averaging 5.26%, which is down from April’s 5.35%. This time last year, the average rate for this term was 3.03%.

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