What subsequent for mortgage charges?
Banks and building societies are continuing to reprice mortgage deals higher amid the market fallout from the conflict in the Middle East.
Lenders including Halifax, Santander, Barclays, HSBC and Nationwide Building Society have all announced multiple rate increases in recent weeks.
Fixed rate mortgage pricing is largely based on sonia swap rates – the inter-bank lending rate, which is based on future interest rate expectations.
When sonia swaps rise sufficiently it often results in fixed mortgage rates going up, and vice versa when they fall.
Similar to gilt yields, sonia swap rates have spiked upwards. Two-year swaps were 4.13 per cent as of 2 April, up from 3.36 per cent on 27 February.
Meanwhile, five-year swaps were at 4.08 per cent, up from 3.41 per cent on 27 February.
Traders no longer expect any interest rate cuts this year, with a growing possibility that the Bank of England will need to raise them later this year.
This is because cutting interest rates any further could risk adding fuel to what may prove to be a fresh inflationary spike as a result of the conflict in the Middle East and the impact it could have on energy prices.
At present, traders are betting on two or three interest rate hikes this year, but this could change very quickly.
And while the markets are pricing in interest rates increases, many economists now think interest rates will be held at 3.75 per cent by the Bank of England into next year.
> Best mortgage rates calculator: Check the deals you could apply for
Mortgage rates: What’s happening
The Bank of England opted to hold interest rates at 3.75 per cent in March, but a hike at its next meeting at the end of April is now very much on the table.
In December, the bank cut interest rates from 4 per cent to 3.75 per cent, down from a high of 5.25 per cent the previous year. The next decision will take place on 30 April.
While mortgage rates have risen by more than a percentage point over the past month, it’s not yet a repeat of what happened in 2023.
In 2023, a combination of base rate hikes and worries over inflation figures saw average two-year fixed mortgage rates reach a high of 6.86 per cent in the summer, according to Moneyfacts, while five-year fixed rates hit 6.35 per cent.
Mortgage rates still remain far higher than borrowers had enjoyed prior to the surge in 2022.
Roughly four years ago, the averages were hovering around 2.5 per cent for a five-year fix and 2.25 per cent for a two-year.
Today the average two-year fix is 5.89, up from 4.83 per cent at the start of March and the average five-year fix is 5.78 per cent, up from 4.95 per cent.
As recently as October 2021, some of the lowest mortgage rates were under 1 per cent.
Will mortgage rates go up or down?
If the conflict continues in the Middle East, then there could be further waves of lenders withdrawing or repricing deals over the coming weeks.
Due to the uncertainty caused, mortgage deals are only lasting for 14 days on average, according to Moneyfacts.
The last time the shelf-life was as short was at the start of August 2023, at 13 days.
As a comparison, the average shelf-life was 15 days at the start of October 2022, when the ‘mini-Budget’ had an unprecedented impact on mortgage choice.
Martin Rayner, director at Compton Financial Services, urged borrowers to secure a deal now before it’s too late.
‘With mortgage shelf-lives collapsing to just 14 days, borrowers cannot afford to be complacent and wait until the last minute.
‘The smartest move right now is to secure a rate up to six months early. This acts as an insurance policy: if rates go up, you’re protected; if they come down, you can switch to the lower rate before you complete.
‘It’s the only way to guarantee you get the best rate over the next six months, rather than gambling on a single day.
‘In this volatile market, even a small rate change makes a huge difference. The difference between waiting and acting now could be massive.
‘On a typical £300,000 mortgage, shaving just 0.2 per cent off your rate saves you £1,200 over two years.’
Should you fix for two or five years?
Choosing what length to fix for depends on what you think may happen to interest rates but should importantly take more account of what your personal circumstances are.
David Hollingworth adds: ‘Borrowers need to think carefully about whether longer-term security would suit them better, rather than heading straight for the lowest rate.’
Key factors include whether you may move soon, how much you prefer the security of fixed payments for longer and how well you could cope with a rise in mortgage bills.
Fixed rates of any length offer borrowers certainty over what their payments will be from month-to-month.
Those opting for a shorter two-year fix are backing interest rates falling over the next couple of years, or at least staying steady, so that when it is time to remortgage their bills won’t rise.
With five-year fixes borrowers are locking in to rates that they know won’t change for longer, perhaps either because they believe rates may rise or because they prefer the security. Five-year fixes were hugely popular when rates were lower.
If rates fall, a tracker mortgage without an early repayment charge could put borrowers in a position to take advantage.
However, for all the potential benefit, a tracker product will also leave people vulnerable to further base rate hikes, while also being more expensive than fixed rates at present.
Whatever the right type of mortgage for your circumstances, shopping around and speaking to a good mortgage broker is a wise move.
> Check the best mortgage rates based on your house price and loan size
What are the best mortgage rates?
Bigger deposit mortgages
Five-year fixed rate mortgages
Yorkshire Building Society has a five-year fixed rate at 4.77 per cent with a £995 fee at 60 per cent loan to value.
Santander has a five-year fixed rate at 4.85 per cent with a £749 fee at 60 per cent loan to value.
Two-year fixed rate mortgages
Nationwide BS has a 4.71 per cent two-year fixed rate deal with £999 fees at 60 per cent loan-to-value.
NatWest has a two-year fixed rate at 4.75 per cent with a £1,495 fee at 60 per cent loan to value.
Mid-range deposit mortgages
Five-year fixed rate mortgages
Yorkshire Building Society has a five-year fixed rate at 4.79 per cent with a £995 fee at 75 per cent loan to value.
Accord Mortgages has a five-year fixed rate at 4.86 per cent with a £1,495 fee at 75 per cent loan to value.
Two-year fixed rate mortgages
Yorkshire BS has a two-year fixed rate at 4.82 per cent with a £995 fee at 75 per cent loan to value.
Nationwide BS has a two-year fixed rate at 4.82 per cent with a £999 fee at 75 per cent loan-to-value.
Low-deposit mortgages
Five-year fixed rate mortgages
Nationwide Building Society has a five-year fixed rate at 5.09 per cent with £999 fee at 90 per cent loan to value.
Leeds Building Society has a five-year fixed rate at 5.1 per cent with a £999 fee at 90 per cent loan to value.
Two-year fixed rate mortgages
Leeds Building Society has a two-year fixed rate at 5.15 per cent with a £999 fee at 90 per cent loan to value.
NatWest has a two-year fixed rate at 5.18 per cent with a £745 fee at 90 per cent loan to value.
Tracker and discount rate mortgages
The big advantage to a tracker mortgage is flexibility. They are also slightly cheaper following the rise in fixed rates.
Tracker mortgages essentially track the Bank of England base rate, plus a percentage. For example, base rate (3.75 per cent) plus 0.25 per cent giving an overall rate of 4 per cent.
Tracker mortgages also have a rather unique feature in that they tend to come without early repayment charges and can therefore be paid off or switched away from without penalty.
The lowest two-year tracker deal is currently offered by Halifax at 3.96 per cent and a £1,599 fee. That’s base rate plus 0.21 per cent.
On a £200,000 mortgage being repaid over 25 years that would equate to paying £1,051 a month.
Lloyds Bank is also offering sub-4 per cent tracker deals at present.
There may also be cheaper rates to be had with discount rate mortgages, which track a certain level below the lenders’ standard variable rate.
A fixed-rate mortgage will almost inevitably carry early repayment charges, meaning you will be limited as to how much you can overpay, or face potentially thousands of pounds in fees if you opt to leave before the initial deal period is up.
You should be able to take a fixed mortgage with you if you move, as most are portable, but there is no guarantee your new property will be eligible or you may even have a gap between ownership.
Many tracker deals have no early repayment charges, which means you can up sticks whenever you want – and that suits some people.
Make sure you stress test yourself against a sharper rise in base rate than is forecast.
