- Rising Mortgage Rates: Impact of Anticipated Interest Rate Hikes
- All-Time High: Average Five-Year Fixed Mortgage Rate Reaches 6.01%
- Market Reaction: Lenders Adjust Rates as Inflation and Base Interest Rate Increase
Since May, mortgage rates have risen consistently as lenders price in anticipated Bank of England interest rate hikes.
The average five-year fixed mortgage rate has increased to 6.01%, according to a financial information company.
According to Moneyfacts, the average two-year fixed-rate mortgage has increased to 6.47 percent.
Monday’s average five-year rate was 5.97%, while the two-year deal averaged 6.42 percent.
After the Elizabeth Truss administration’s disastrous mini-budget, a five-year fixed contract is at an all-time high.
Two weeks ago, the average rate for a two-year fixed mortgage surpassed 6%.
These rates represent a significant increase from the years of extremely low-interest rates. In October 2021, less than two years ago, the average rate on a five-year contract was 2.55 percent.
The majority of mortgage holders have fixed-rate contracts, of which 2.4 million will expire between now and the end of 2024, according to UK Finance, the banking industry trade body.
Mortgage rates have risen since May, when inflation data showed price rises were not reducing as quickly as expected.
To reduce inflation to 2%, this caused the markets to anticipate that the Bank of England would raise the base rate interest rate by a greater amount than previously anticipated.
Lenders priced the anticipated increase into the mortgages they had on the market, resulting in higher mortgage rates for those whose current fixed-rate mortgage expires.
Due to strong inflation, the Bank of England base rate was unexpectedly hiked to 5% last month.
The Monetary Policy Committee of the Bank of England is expected to boost the rate to 5.5% on 3 August.
To dampen economic activity and delay the rate of price increases, the monetary policymaker has been gradually increasing interest rates, thereby making borrowing more costly.
In May, the consumer price index, a measure of inflation, stood at 8.7%.
When asked if he was concerned about the five-year rate reaching 6%, a spokesperson for the prime minister stated, “We recognize that this is a challenging time for mortgage holders and renters alike.”
“Government must work with the Bank of England to reduce inflation, which is driving some of these higher mortgage rates; in the short term, mortgage holders have access to specific support.”
