Mortgage rates have surged to within touching distance of the levels seen after Liz Truss’s disastrous mini-Budget last year.
The average two-year fixed rate deal reached 6.63 per cent today, just shy of the 6.65 per cent level hit on October 20, according to analysts MoneyfactsCompare.
The last time before autumn 2022 that this figure exceeded 6 per cent was nearly 14 years ago, in November 2008 during the global financial crisis.
Banks and building societies have raced to increase mortgage rates in recent weeks, with many pulling deals from the market to reprice them.
Rates on two-year fixed deals have increased by an average of 1.14 percentage points since the beginning of June.
The Bank of England under Governor Andrew Bailey (pictured) has lifted interest rates a record 13 times since December 2021
The Bank of England has been raising interest rates sharply since December 2021, when they stood at 0.1 per cent, to reach 5 per cent today.
The rate is widely expected to climb to 6 per cent by the end of the year, as the Bank desperately attempts to tame inflation.
This could prompt further waves of mortgage rate increases, spelling yet more misery for homeowners.
Stuart Cheetham, chief executive of lender MPowered Mortgages, expects the average two-year fixed rate deal to breach the 7 per cent mark before the end of the year.
‘For most people, mortgage rates will rise between 20 and 30 percentage points further over the next six to eight weeks,’ he said.
But interest rates are expected to rise further so we are going to see a few more steep increases in mortgage rates beyond that.’
The current turmoil is expected to be far longer lasting than the short sharp shock seen last autumn, he warned.
The Bank of England is expected to hike interest rates to highs of 6 per cent by the end of 2023
Panic swept the market last year in the response to uncertainty caused by Kwasi Kwarteng’s controversial mini-Budget.
Nearly 2,000 mortgage products were pulled by lenders scrambling to re-price deals to reflect expected future rises in interest rates.
Mr Cheetham said: ‘No one saw it coming last time so it caused a sharp spike. But since March there has been a growing level of uncertainty around inflation, a steady rise in the negative sentiment and several base-rate increases.
‘So the unwinding will take several quarters, rather than weeks like the last time around.’
Homeowners and buyers are rushing to lock in deals as rates keep increasing amid the ongoing chaos in the mortgage market.
The value of new remortgages written by Knight Frank Finance increased by 41 per cent during May and June compared with the previous two-month period, it said.
Lenders have been swamped by applications and are being forced to pull deals off the market to re-price.
Mortgage rates have surged within touching distance of the levels seen after Liz Truss’s (pictured) disastrous mini-Budget
As of today, Virgin Money hiked its two- and three-year fixed rate deals by 0.35 percentage points and its five-year rates by 0.3 percentage points.
David Hollingworth, of mortgage broker L&C Mortgages, said: ‘We are still seeing a lot of change coming through and rates are moving very quickly so it’s no surprise that borrowers want to get ahead of the curve.’
Most borrowers have snapped up shorter-term deals such as two-year rather than five-year fixes in the hope that interest rates begin to fall in the next 12 to 18 months, Mr Hollingworth said.
Ray Boulger, of mortgage broker John Charcol, said: ‘Homeowners who will be impacted the most are those whose current fixed rate is due to end during the next 12 months or so, whereas borrowers with fixed rates lasting until 2025 or beyond will still see a large increase from their previous very low rate but they are likely to avoid the worst of the rate increases.’
This post first appeared on Dailymail.co.uk
