Mortgage Rates Volatility Causes Concern for Borrowers

Despite the Bank of England base rate remaining unchanged, mortgage and savings rates have been experiencing significant volatility in recent months. This instability has raised concerns for borrowers who are already struggling to make ends meet.

Graph showing mortgage rate fluctuations

According to a financial information website, the average two-year fixed mortgage rate has increased 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. These rate increases may cause deep concern for borrowers who are about to come off a fixed-rate deal and need to refinance.

“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.” - Rachel Springall, finance expert

Homeowners who are 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 at above 8%. In fact, according to calculations from the financial information website, a mortgage holder on the current average SVR could end up paying £287 more per month compared to if they were on an average two-year fixed-rate mortgage.

Mortgage holders may need to rethink their financial strategies

The volatility in swap rates, which are used by lenders to price mortgages, has led to lenders increasing fixed mortgage rates and withdrawing some deals priced below 5%. This has resulted in approximately 1.6 million fixed-rate mortgages due to end or have already ended in 2024.

Meanwhile, the total value of outstanding mortgage balances with arrears has reached its highest level since 2014, with a 4.2% increase in the first quarter of 2024, according to the mortgage lenders and administrators statistics.

Furthermore, around one in five new first-time buyers took out mortgage terms stretching beyond 35 years in the first quarter of this year, according to UK Finance figures. This trend has sparked concerns about the long-term affordability of mortgages.

In the savings market, the average easy access rate has slightly increased from 3.11% to 3.12% between the start of May and the start of June. However, this rate is still down from 3.18% at the start of December.

Graph showing savings rate fluctuations

As the mortgage and savings markets continue to experience volatility, borrowers and savers alike are advised to keep a close eye on interest rates and adjust their financial strategies accordingly.