Mortgage Holders Warned to Check Rates After Bank of England Decision

Mortgage holders are being warned to check their mortgage and savings rates after the Bank of England’s decision to keep the base rate unchanged. This decision has led to volatility in mortgage and savings rates, causing concern for borrowers.

According to a financial information website, the average two-year fixed mortgage rate has crept up from 5.91% to 5.93% between the start of May and the start of June. The average five-year fixed-rate mortgage has also edged up from 5.48% to 5.50% during the same period.

Average mortgage rates have increased

The average standard variable rate (SVR) stands at 8.18%, which is unchanged month-on-month and slightly down from 8.19% in December 2023. This rate has almost doubled since the Bank of England started increasing the base rate in December 2021.

“The rising cost of mortgages may cause deep concern for borrowers about to come off a fixed-rate deal and needing to refinance,” said Rachel Springall, a finance expert. “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.”

Mortgage repayments are becoming unaffordable for many

Homeowners unsure about 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%. According to calculations, a mortgage holder on the current average SVR could end up paying £287 more per month compared with if they were on an average two-year fixed-rate mortgage.

The calculations were based on a £200,000 mortgage borrowed over a 25-year term on a repayment basis, with SVR repayment of £1,567 per month, versus £1,280 per month on a two-year fixed rate.

The volatility in swap rates, which are used by lenders to price mortgages, has led to lenders increasing fixed mortgage rates, as well as withdrawing some deals priced below 5%.

Mortgage applications are becoming more difficult

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 that getting a mortgage is too far out of reach right now.

Around 1.6 million fixed-rate mortgages are due to end or have already ended at some point in 2024, according to trade association UK Finance. Recent Bank of England figures showed the total value of outstanding mortgage balances with arrears had reached its highest level since 2014.

In another sign of the affordability crunch, recent UK Finance figures have also shown that around one in five new first-time buyers took out mortgage terms stretching beyond 35 years in the first quarter of this year.

Mortgage arrears are on the rise

Stretching out mortgages for longer is one way of making monthly repayments more affordable, although borrowers could pay more in interest charges over the longer-term.

The mortgage market is becoming increasingly volatile, and borrowers need to be aware of the changing rates and their impact on their mortgage repayments.