Home loan costs close to 6% in mini-budget fallout after mortgage rates rise and brokers warn of another week of chaos for homeowners
Interest rates on mortgages have risen by almost a full percentage point since the mini-Budget
Brokers warned homeowners of further chaos amid soaring interest rates
Lenders pulled nearly 2,000 mortgage products in a scramble to reprice deals
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Interest rates on mortgages have risen by almost a full percentage point in the ten days since the mini-budget, figures showed today.
Brokers warned that homeowners face another week of chaos as lenders try to get a handle on market expectations of soaring interest rates.
The typical rate for a two-year fixed home loan has risen to 5.75 per cent, up from 4.74 per cent on September 23, the day of Chancellor Kwasi Kwarteng’s announcement.
This is more than double the average rate of 2.34 per cent offered last December, according to analysts at Moneyfacts.
Meanwhile, the price of a five-year fixed-rate mortgage rose to 5.48 per cent today from an average of 4.75 per cent on the day of the mini-budget.
Interest rates on mortgages have risen by almost a full percentage point in the ten days since the mini-budget, figures showed today
Panic swept the property market last week on concerns that the Bank of England would raise its base rate to 6 percent next year.
Lenders pulled nearly 2,000 mortgage products last week as they struggled to reprice their deals to reflect future rate rises.
Some, including Virgin Money and HSBC, cautiously returned to the market at the end of last week – but with excessive rates.
NatWest announced on Sunday that it was increasing its fixed rate deals by up to 1.78 percentage points.
According to data from the Bank of England, more than two million homeowners with fixed-term loans will refinance between now and the end of 2024. They face paying thousands more when budgets are already hit.
Yesterday the Chancellor announced that he was carrying out a U-turn on his most controversial policy, cutting the 45p rate of income tax.
Brokers reportedly fielded inquiries from customers asking if they could withdraw mortgage applications submitted over the past week.
Experts said borrowers were mistakenly hoping the chancellor’s u-turn could prompt lenders to cut their interest rates over the next few weeks.
On the first day of last month, 3,890 mortgage products were for sale. It crashed to around 2,000 and yesterday the number was 2,262
Dominik Lipnicki of Your Mortgage Solutions said: ‘The Chancellor’s decision yesterday was a political decision which will have little effect on the City. People are still very stressed and panicked as they begin to understand that they are facing a huge shock in their mortgage bills, which is inevitable at this point.’
The rise in interest rates is likely to put a brake on property sales, said Dominic Agace, managing director of estate agency Winkworth. “That’s what happens every time there’s a step-up in mortgage rates,” he told the Financial Times.
He added that the slowdown would be more acute in areas of the market where sales peaked during the pandemic, such as large country properties.
On the first day of last month, 3,890 mortgage products were for sale. It crashed to around 2,000 and yesterday the number was 2,262.
Rachel Springall, a finance expert at Moneyfacts, said: “Borrowers may be concerned to see a further fall in mortgage availability, but many lenders have been very vocal that their hikes are on a temporary basis amid the interest rate uncertainty.”
‘Seeking advice from an independent broker would be wise, particularly for those borrowers who have yet to start the mortgage process and are put off by the level of choice and much higher mortgage rates than they might have expected.
‘The next few weeks will be crucial to see where lenders go from here, but we have already seen some new firm offers arrive since last week.’