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Despite interest rates being cut, mortgage rates are still rising with the average rate for a two-year fixed mortgage now at 5.5%. Mortgage lenders such as Barclays, HSBC, NatWest, and Nationwide have recently increased rates charged on new fixed deals. This contradicts borrowers’ hopes that costs would continue to decrease after the Bank of England cut its benchmark interest rate earlier this month. This news is particularly concerning for those trying to secure a home loan amidst already increasing borrowing costs due to events such as the Budget.
More than 80% of mortgage customers hold fixed-rate deals, with the interest rate on this kind of mortgage contract remaining the same until the deal expires unless a new one replaces it. Approximately 800,000 fixed-rate mortgages with an interest rate of 3% or less are predicted to expire annually until the close of 2027. Hundreds of thousands of first-time homebuyers also wish to obtain a place to call their own while benefiting from low mortgage rates.
According to Moneyfacts, the average mortgage rate was at its peak in August 2023, reaching 6.85%. Although rates are now lower, the cost of deals has been increasing before and after the Budget. The average rate for a two-year fixed deal currently stands at 5.5%. Almost all of the cheapest deals on the market, typically for those who can offer a large deposit, have risen back above a rate of 4%.
The Bank of England reduced the base rate from 5% to 4.75% on 7 November, which influences the general cost of borrowing for businesses, individuals, and the government. Still, mortgage rates are subject to lenders’ and financial markets’ expectations for future interest rates rather than current rates. The most recent mortgage rate adjustments reflect the higher costs for lenders who anticipate a ‘higher for longer’ trend for the market outlook for rates, according to David Hollingworth from mortgage broker L&C
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