A recent study in to the impact of mortgage rate rises since the end of 2022 suggests that the borrowers of average 2-Year Fixed Mortgages are £35 a month or £420 a year worse off, with many paying even more than that on their mortgage deals. How long can this payment increase realistically continue for? When are rates likely to come down? What can you do to avoid paying even more on your mortgage?
Average 2-Year Fixed Mortgages
On Thursday this past week (01/06/23), Jess Fairfax from price comparison website Uswitch released the results of their latest ‘average uk mortgage rate’ check that they carry out on a weekly basis. According to Uswitch, the average 2-year fixed rate mortgage currently stands at 5.64%. This figure has increased by 0.04% in a week and 0.29% in two months.
In September 2020, the average UK 2-year fixed mortgage rate stood at 2.24% meaning that in less than three years, rates have on average risen by 3.40%. A huge amount, I think no one can deny. And unfortunately we aren’t out of the woods yet. Although rates seemed to be going down, this week most of the main UK mortgage lenders have surprisingly pulled their products and increased rates, signalling that there will most likely be another increase to the bank of England’s base rate in June.
Kellie Steed, Uswitch rates expert has commented on the rising average 2-year fixed mortgages, saying:
“While many experts thought that the series of consecutive Bank of England base rate rises were ending, more recent analysis suggests that it will reach 5.5% by the end of the year, with no signs of rates beginning to fall until at least February 2024.
It’s clear that both recent and anticipated future base rate lifts, as well as increased swap rates, have already been factored into many lender’s rate decisions, with Nationwide, Halifax, Santander, Virgin Money and Atom mortgages all pushing up their fixed rates over the past few days. Although, on the whole, average two and five-year fixed-rate deals remain lower than they were towards the end of 2022 and at the beginning of this year, for the moment.
“Some lenders have chosen to go a step further by pulling deals from the market entirely, with a reduction of 7% of all residential and 14% of all buy-to-let fixed-rate deals seen over the last week. More lenders are expected to follow suit in the run-up to the next base rate announcement on 22 June. You can stay up to date with fluctuating average fixed and variable rates by checking our average mortgage interest rates today.”
When Will Mortgage Rates Come Down?
This is difficult to say but hypothetically, things should start looking a lot better by the end of this year and beginning of next year. Why do we think this? Hopefully by then, inflation should have dropped significantly enough for the Bank of England to lower the base rate. Will the base rate drop by a lot? Perhaps not, but will it drop? Almost certainly. Inflation is dropping, the main issue right now is that it has not dropped anywhere near as much as the bank hoped. Once this drops below a certain level, the base rate will reduce and lenders will drop their rates again.
For people who are hoping that 2% mortgage rates will be on the cards again sometime soon, unfortunately we’re afraid that we aren’t likely to see them again for a while. We will all have to accept that the best rates we might see will be to perhaps 3%. So, what can you do in the meantime while we all wait for interest rates to drop. If you are already on a fixed rate of 5 years or more with several years still remaining, then you don’t need to worry about rates for the time being. However, if you are on a shorter fixed rate period of worse, already on the lender’s SVR rate, then you need to act now.
When Should I Speak To a Mortgage Advisor About Switching My Rate?
If you are on a fixed rate product, your mortgage rate will probably go up once your fixed rate period finishes. That is why you must speak to a mortgage broker to make sure that you secure the most competitive and most manageable new mortgage product so that you don’t end up paying way too much on your loan. Six months before your product ends, a mortgage advisor can arrange and apply for a new product. When your fixed period ends, you will automatically go onto the new product that your advisor has helped you to secure. So if your fixed rate product is due to expire within 6 months, give our team a call asap.
What should you do if your rate has already expired and you are on the lenders standard variable rate? The SVR is a rate of interest that the lender charges mortgage borrowers as a default, if they have not selected a specific product. The SVR is generally much higher than the products that they offer, so it makes sense to avoid the SVR as a priority. For example, if the average 2-year fixed mortgage rate is 5.65%, the SVR for that lender could be 8%. If you have automatically gone onto the SVR after your fixed period has ended, you can call a mortgage broker immediately and they will help you to secure a new fixed term mortgage product and get off the standard variable rate.
Speak To a Mortgage Advisor
If anything in this article applies to you, and you feel that you are either paying too much for your mortgage currently or need to arrange a new fixed term mortgage product, please give our team of mortgage advisors a call. We are here to help and all of our initial mortgage assessments are free of charge.