Mortgage and savings rates have been fluctuating in recent months, despite the Bank of England's base rate remaining steady, according to a financial information website.
The research was presented as the Bank of England held the base rate at 5.25% on Thursday, despite inflation returning to the 2.0% target last month for the first time since July 2021.
UK Mortgage Rates Surge: Concerns Grow for Borrowers and First-Time Buyers
According to Moneyfactscompare.co.uk, the average two-year fixed mortgage rate on the market increased from 5.91% in May to 5.93% in June, after falling from 6.04% in December 2023.
The average five-year fixed-rate mortgage on the market increased from 5.48% to 5.50% between May and June, after falling from 5.65% at the beginning of December 2023.
The average standard variable rate (SVR), that borrowers face when their initial arrangement expires, is 8.18%, unchanged from month to month and slightly lower than 8.19% in December 2023.
Rachel Springall, a finance expert at Moneyfactscompare.co.uk, stated: “The rising cost of mortgages may cause deep concern for borrowers about to come off a fixed-rate deal and needing to refinance. Affordability is a pressing point for both homeowners looking to refinance and new buyers, so those struggling to see how they can afford mortgage repayments will no doubt be desperate for interest rates to come down.
“Homeowners unsure on whether to lock into a new fixed-rate mortgage may still find it more affordable than falling onto a standard variable rate, which stands above 8%. This rate has almost doubled since the Bank of England started increasing base rates back in December 2021.”
According to Moneyfactscompare.co.uk calculations, a mortgage holder on the current average SVR could eventually end up paying £287 more per month than if they had an average two-year fixed-rate mortgage.
The calculations were made based on a £200,000 mortgage financed over a 25-year repayment period with an SVR repayment of £1,567 per month, compared to £1,280 per month on a two-year fixed rate.
Ms Springall stated that due to volatility in swap rates, which lenders use to price mortgages, lenders had raised fixed mortgage rates and withdrawn certain agreements priced below 5%.
She went on to say: “As a result, the average two-year fixed-rate is nearing where it stood six months ago, undoing the positive rate cut momentum seen during the first quarter of 2024.
“The average five-year fixed rate has remained above 5% since June 2023, dipping above and below 6% over the past six months. At present, it’s cheaper to lock into a five-year fixed mortgage than a two-year deal, based on average rates, which has been the case since October 2022.
“First-time buyers who are struggling to get their foot onto the property ladder and don’t have the ‘bank of mum and dad’ to lean on may feel getting a mortgage is too far out of reach right now.”
UK Mortgage Market Insights and Savings Rates Update
According to trade group UK Finance, around 1.6 million fixed-rate mortgages will expire or have expired by 2024.
Recent Bank of England estimates showed the total value of outstanding mortgage balances with arrears has hit its highest level since 2014.
According to mortgage lenders and administrators, the value of existing mortgage amounts in arrears climbed by 4.2% in the first quarter of 2024, reaching £21.3 billion.
In another indication of the affordability crisis, latest UK Finance numbers reveal that about one in every five new first-time buyers took out mortgage terms longer than 35 years in the first quarter of this year.
Around 21% of individuals embarking in their first journey in the property market had home loans that lasted for more than 35 years, as stated by UK Finance
Extending mortgages for a longer period of time might help make monthly payments more manageable, but borrowers may pay more in interest charges in the long run.
According to Moneyfactscompare.co.uk, the average easy access rate in the savings market was 3.12% at the beginning of June, slightly higher than 3.11% at the beginning of May but lower than 3.18% at the beginning of December.
The average easy access Isa rate is 3.31 percent, the same as it was at the start of December but slightly lower than 3.33 percent at the beginning of May.