Mortgage charges RISE for first time since February as Budget fears develop

Average mortgage rates are on the rise for the first time in eight months, as lenders exercise caution ahead of possible tax rises in November’s Budget.

Typical rates on two and five-year fixed mortgages edged up by 0.02 percentage points over the last month, having moved downwards consistently since February. 

The average two-year fix is now 4.98 per cent while the average five-year fix is 5.02 per cent, according to new data from rates scrutineer Moneyfacts.

On a £200,000 mortgage being repaid over 25 years that would mean paying either £1,167 a month or £1,172 a month. 

Mortgage experts have said lender nerves ahead of the Budget had contributed to the rise. 

David Stirling, independent financial adviser at Belfast-based Mint Wealth, said: ‘The upward move in fixed rates may be modest, but it does mark a shift in sentiment and is a reminder that fiscal storm clouds are gathering.

‘With the housing market eagerly anticipating any changes to taxation in the upcoming Budget, we will continue to walk a tightrope.’

Property tax changes that could appear in the Budget include replacing stamp duty with a new annual property tax on homes worth more than £500,000; a capital gains ‘mansion tax’ which kicks in when homes worth £1.5million or more are sold; and an additional tax raid on landlords. 

Stephen Perkins, managing director at Yellow Brick Mortgages, added: ‘Right now, lenders are adjusting the sails prior to the wind changing direction, as they suspect there are rough seas ahead.’

‘The increases in rates are not huge but they do show that the market is uncertain and that lenders are concerned about the impact of the forthcoming fiscal event.’

The lowest rates on the market have also ticked up in recent weeks.

This time last month, someone buying with a 15 per cent deposit could get a 3.94 per cent two-year fix with Yorkshire Building Society or a 3.95 per cent deal with Santander. 

Now, the lowest deals available for these buyers are either a two-year fix at 4.05 with Halifax or five-year fix at 4.2 per cent with Yorkshire Building Society.

The fear is that higher rates could lead to fewer home moves, with first-time buyers in particular holding off.

Ranald Mitchell, director at Charwin Mortgages, said that even small interest rate increases could send first-time buyers running for cover.

‘Every small movement upwards feels like a setback when buyers are already stretched to their limits,’ he said. 

‘Lenders are working hard to stretch affordability and offer higher loan amounts, but rising rates slam the door shut for many.

‘The market needs first-timers back in force, but that won’t happen until confidence returns.’