Economic uncertainty is continuing to take its toll on the mortgage market, with the average rate on a two-year fixed deal, reaching a fresh 14-year high on Tuesday.
Rates had already been on the increase this year, but the financial chaos triggered by Kwasi Kwarteng’s mini-budget has seen them climb to 6.53%, a level not seen since the 2008 financial crisis.
For comparison, the average rate on a two-year fixed deal was about 4.74% on the morning of the mini-budget, and only 2.43% in December last year.
The news will impact more than 100,000 mortgage customers, including both first-time buyers and those seeking to remortgage. Read more about how the volatile mortgage market affects you in our article Mortgage market meltdown: what it means for you.
Could lenders cut mortgage rates soon?
Some experts are hopeful that lenders are just playing it safe in an unstable market for the time being, and that rates could start to decrease again within a few weeks.
Following the Bank of England intervening to buy government bonds last week, and the government making a u-turn on the 45p tax cut, swap rates – which indicate the way that interest rates are expected to move – have decreased from their peaks last week. Rates have fallen from 5.9% to 4.9% on two-year swaps and 5.4% to 4.6% on five-year swaps. Read more about these developments in our articles Bank of England intervention: what it means for pension savers and Government makes u-turn on scrapping of 45p tax rate.
Many brokers share the opinion that lenders are keeping rates high to avoid taking on too many borrowers at an uncertain time. Some experts believe that lenders will begin to decrease their rates soon in line with swap rates. Andrew Montlake, managing director of mortgage broker Coreco, said: “If swap rates do stay down, then there’ll be a lot of pressure on lenders to reduce some of their new rates, which in time you might see them do.”
While many lenders’ standard variable rates (SVRs) are higher than their fixed rates at present, a drop in rates would mean that prospective mortgage customers could in theory be better off biding their time for a better deal.
However, Teddy Cenaj, mortgages expert at Rest Less Mortgages, says: “In most cases, you will be better off remortgaging and not staying on your lender’s SVR, as they tend to be higher than what’s out there on the market, and it does look like there will be further interest rate hikes.
“In some special circumstances, such as the sub-prime market, you may find that going on the standard variable rate is actually currently cheaper than what you may get on the open market.
“But you need to consider that if rates continue to rise, then your standard variable rate may rise above what you could have secured elsewhere. You certainly should talk to a mortgage adviser before making any decisions.”
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.