Mortgage rates have moved in divergent directions, with the average two-year fixed deal touching 6%, creating a challenging environment for prospective homeowners. As buyers struggle to find affordable options, many are opting for loans that extend well into retirement.
The average rate on a two-year fixed deal this week stands at 6.09%, up from last week’s 5.99%. Conversely, the average rate for a five-year deal has decreased slightly, now at 5.40%, down from last week’s 5.46%, according to Uswitch data.
The Bank of England (BoE) is expected to keep UK interest rates at their 16-year high of 5.25% for the seventh consecutive time this Thursday.
With fewer BoE interest rate cuts anticipated in 2024 and an impending rate announcement, many major lenders have maintained their offers. Barclays, however, has increased the cost of some of its deals.
“Ahead of this week’s base rate announcement, we’ve seen rates rise again across the board, with the average two-year fix now sitting above 6%. Most economists don’t believe that the Bank of England will cut the base rate in a few days’ time on the 20th of June. However, lenders seem divided in their actions, with some cutting certain rates while most raise them,” Kellie Steed, Uswitch’s mortgage expert, told Yahoo Finance UK.
Rising Mortgage Terms and Retirement Risks
Young homebuyers are increasingly opting for ultra-long mortgages, potentially risking their retirement prospects. Researchers have noted a surge in mortgage terms extending beyond the state pension age, particularly among those under 30, according to BoE data.
However, some relief may be in sight as slowing inflation could be beneficial for homeowners and buyers hoping for a summer interest rate cut.
“Mortgage rates have fluctuated throughout the year as financial expectations shifted, causing a headache for nervous first-time buyers and existing homeowners looking for better deals as they refinance,” said Alice Haine, personal finance analyst at Bestinvest.
Inflation has recently fallen back to the BoE’s 2% target for the first time in nearly three years.
Current Mortgage Rates
HSBC
Five-year deal: 4.48%
Two-year fix: 4.86% (with £999 fee)
NatWest
Five-year deal: 4.32% (online-only, £1,495 fee)
Green mortgages: 4.42% (EPC rating A or B, £995 fee)
Two-year fix: 4.82% (with £1,495 fee)
Santander
Five-year deal: 4.28% (60% LTV, £999 fee)
Two-year fix: 4.80% (60% LTV, £999 fee)
Selected rate reductions: 60% LTV five-year fix at 4.28%, 90% LTV five-year fix at 5.10%
Barclays
Five-year deal: 4.41% (60% LTV, £899 fee)
Two-year fix: 4.99%
Nationwide
Five-year deal: 4.59% (60% LTV, £999 fee)
Two-year fix: 4.84%
Halifax
Two-year fix: 4.78% (with £999 fee)
Five-year deal: 4.45%
Ten-year deal: 4.93%
Cheapest Mortgage Deal
NatWest: 4.32% for a five-year fix (requires 40% deposit)
Barclays: 4.34% for a five-year fix
New Mortgage Products
Yorkshire Building Society offers a deal for first-time buyers with just a £5,000 deposit, allowing purchase of properties valued up to £500,000, making it possible to enter the market with as little as a 1% deposit.
Future of Mortgage Rates in 2024
While mortgage holders have faced high repayments due to the elevated base rate, the expectation for significant rate cuts in 2024 has diminished. Traders now anticipate only one or two rate cuts, compared to the five initially expected.
If the BoE implements any cuts this year, mortgage rates will decrease, but not as much as previously anticipated for 2024. Markets currently expect one cut in August and possibly another later in the year.
Nicholas Mendes, head of marketing and mortgage technical manager at John Charcol, emphasized that lender responses will vary until an official bank rate cut occurs. “Those with smaller pipelines may be more proactive in implementing reductions,” he noted.
Approximately 1.6 million borrowers with relatively cheap fixed-rate deals are set to see those deals expire this year, adding further pressure to the market.
