Average two-year fixed mortgage rate now over 6% – when will prices fall?
The average price of a two-year, fixed-rate mortgage has surpassed 6% today (Monday 19 June) – the first time since December 2022.
At the begining of May, the average for a two-year fix stood at 5.26%, but as of this morning it's 6.01%, according to Moneyfacts data.
The rapid rate rise will pile more pressure on homeowners who still need to remortgage this year. And with the Bank of England set to hike the base rate for the 13th time later this week, mortgage costs could climb even higher.
Here, Which? delves into why rates are rocketing, how it impacts your mortgage and when rates will start to come down.
Why are mortgage rates rising so fast?
In recent weeks, banks and building societies, such as Santander, have been pulling deals and putting them back on the market with much higher rates.
The graph below shows how the average rate for two and five-year fixes has dramatically increased over the past eight weeks, with the sharpest rise coming at the start of June.
Gilt yields and swap rates – which determine the cost of borrowing for lenders – continue to climb in the wake of last month's inflation figures, with CPI inflation recorded at 8.7%
Stubbornly high inflation figures has also sparked predictions that the Bank of England will raise interest rates yet again on Thursday. The Bank's base rate, which plays a pivotal role in determining rates set by lenders, currently stands at 4.5% and is expected to rise to 4.75%.
Amid the uncertainty, lenders have been repricing their products. This has caused average rates to increase day by day, and for the time being, the hikes show little sign of stopping.
- Find out more: best mortgage rates for home movers and first-time buyers
What will higher rates mean for you?
Those on fixed deals will not feel the effects of the price rises until their existing deal comes to an end.
It's estimated more than 1.4 million households, who rushed to snap up a property before the stamp duty holiday came to an end in 2021, will need to remortgage this year and face much higher rates.
Data from Moneyfacts shows the contrast between average rates for two-year and five-year fixes in 2021 compared with 2023.
| Fixed-term length | Average rate in June 2021 | Average rate on 19 June 2023 |
|---|---|---|
| Two years | 2.59% | 6.01% |
| Five years | 2.82% | 5.67% |
Source: Moneyfacts
Fixing at a rate of 2.59% (June 2021 average) on a £200,000 loan paid back over a 25-year period would have cost you £906 a month back in 2021.
Over that time you would have paid down that debt and might owe around £188,000, but remortgaging at the current average of 6.01% for the same period would see your bill rise to £1,212 – more than £300 a month more.
Check out our mortgage repayment calculator for help crunching the numbers.
When will mortgage rates come down?
Without a crystal ball it's impossible to know, but the forecasts point towards more misery to come.
The Resolution Foundation think tank has predicted the average two-year fixed rate deal will hit 6.25% later this year, fueling fears annual mortgage repayments will rise by £2,900 for the average household needing to remortgage next year.
The think tank, which says the UK will face a 'mortgage crunch' next year, doesn't expect the average two-year fix to fall below 4.5% until the end of 2027.
- Find out more: the best rates for homowners and first-time buyers.
What to do if you're struggling to pay your mortgage
Anyone struggling to pay their mortgage should contact their provider as soon as possible.
Ele Clark, Which? retail editor, said: 'The first port of call should always be to talk to your lender. This may seem like an intimidating thing to do, but it's important to remember that lenders are obliged to help customers and speaking to them will not affect your credit rating.
'The support offered by your lender could include a temporary break from payments, interest-only repayments or extending the term of your mortgage. If you're entitled to benefits such as Universal Credit, you could be eligible for the government’s support for mortgage interest loan scheme.'
Repossessions are the last resort taken by lenders, but the most recent statistics from UK Finance show they jumped by 50% in the first quarter of this year.
- Find out more: what to do if you can't pay your mortgage.
