Mortgage Warning: Rates Remain Volatile Despite Base Rate Hold

The latest Bank of England decision has been made on interest rates, but that doesn’t mean mortgage costs have stopped rising. According to experts, mortgage and savings rates have fluctuated in recent months, causing concern for borrowers.

The Current State of Mortgage Rates

The average two-year fixed mortgage rate has incrementally climbed from 5.91% in early May to 5.93% in June, following a dip from December 2023’s 6.04% mark. Furthermore, the typical rate on a five-year fixed mortgage also nudged up marginally from 5.48% to 5.50% between May and June, and down slightly from the 5.65% observed at the outset of December 2023.

Currently, the average standard variable rate (SVR) hovers at 8.18%, steadfast from last month, inching down just a whisker from December 2023’s 8.19%. This rate has almost doubled since the Bank of England started increasing the base rate back in December 2021.

The Impact on Homeowners

Homeowners unsure whether to lock into a new fixed-rate mortgage may still find it more affordable than falling onto a standard variable rate (SVR), 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 an average two-year fixed-rate mortgage.

Mortgage rates continue to fluctuate, causing concern for borrowers.

The Volatility of Swap Rates

Due to volatility in swap rates, which lenders use to price mortgages, they have increased fixed mortgage rates and withdrawn some deals priced below 5%. As a result, the average two-year fixed-rate is nearing where it stood six months ago, undoing the positive rate cut momentum seen during the first quarter of 2024.

The Struggle for First-Time Buyers

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 getting a mortgage is too far out of reach right now. Trade association UK Finance has revealed that around 1.6 million fixed-rate mortgages are set to expire or have already done so at some point in 2024.

The Affordability Squeeze

In a stark illustration of the current affordability squeeze, recent figures from UK Finance show that about one in five new first-time buyers opted for mortgage terms extending beyond 35 years in the initial quarter of this year. By choosing longer mortgage terms, borrowers can make their monthly repayments more manageable, but they risk accruing higher interest charges over the extended period.

Savings Rates Remain Steady

Turning to savings, the average easy access rate stood at 3.12% at the beginning of June, a slight rise from 3.11% at the start of May but a drop from 3.18% at the beginning of December. The average easy access Isa rate is currently at 3.31%, unchanged since the beginning of December but slightly lower than the 3.33% seen at the start of May.

Savings rates remain steady, but savers may still be getting a poor return.

Expert Insights

David Murray, a financial planning expert at abrdn, commented: “While no cut to interest rates is good news for savers, home owners and would-be-first-time buyers will likely see no change or even a rise in mortgage rates, which will provide plenty of heartache for those that have been pinning their hopes on a June drop.”

Nathan Emerson, chief executive of Propertymark, said: “Propertymark remain keen to see rates reduced when circumstances allow and for this to then translate into competitive mortgage deals from lenders at the first opportunity.”

Lucian Cook of Savills explained the wider implications of rate cuts: “The first rate cut will be vital in boosting consumer confidence. Even if it doesn’t immediately change the headline cost of fixed rate mortgages, it will begin to make it easier for borrowers to meet banks’ affordability tests, which are more closely linked to the rates banks offer when such deals come to an end.”

Conclusion

Mortgage rates remain volatile, causing concern for borrowers. While savings rates remain steady, savers may still be getting a poor return. As the Bank of England continues to hold interest rates at 5.25%, borrowers and savers alike will be watching closely to see what the future holds.