Mortgage deals under 4% are quickly vanishing as lenders adjust to higher inflation and lower expectations that the Bank of England (BoE) will cut rates aggressively this year, while almost half a million homeowners face a £510 monthly rise as five-year fixed mortgage deals end.
The average rate for a two-year fixed mortgage stands at 4.90%, while five-year fixed deals average 5.24%, according to data from Uswitch.
The Bank of England has cut interest rates from 4.5% to 4.25%, meaning the average homeowner on a tracker mortgage will see their monthly repayments fall by nearly £29, after the quarter-point snip to the base rate.
However, nearly half a million UK homeowners who secured mortgages at the height of the pandemic are now bracing for a steep rise in monthly payments, as their five-year fixed-rate deals end amid significantly higher interest rates.
Research from price comparison site Compare the Market shows that 469,192 borrowers who took out mortgages in 2020, when the average fixed interest rate stood at 2.11%, could see their monthly repayments surge by hundreds of pounds if they revert to their lender’s standard variable rate (SVR).
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Powered by Money.com - Yahoo may earn commission from the links above. Based on current market conditions, borrowers transitioning to an SVR, now averaging 7.13% according to the latest Bank of England data, would face average monthly payments of £1,227. That marks a £510 increase from the £717 they paid under their original fixed-rate terms, assuming an average mortgage debt of £178,523.
Annually, this equates to a jump from £9,195 to £15,319 — an increase of nearly 67%.
For many, the transition to higher monthly payments is expected to strain household budgets grappling with rising living costs.
Financial advisers are urging borrowers nearing the end of fixed-rate periods to explore remortgaging options and avoid automatically slipping into more expensive SVRs, which are often significantly higher than alternative deals available on the market.
L&C Mortgages associate director David Hollingworth said: “There could be temptation to wait in the hope of lower rates to come but that carries the risk of falling onto a sky high standard variable rate. With uncertainty in the market, rates are constantly moving and some have edged back up, so it can be a confusing time for borrowers.”
“Seeking advice in good time will allow homeowners to secure a deal, protecting against any turnaround in pricing but still having the chance to review before the switch and take advantage of lower rates, if there is further improvement.”
Read more: The pros and cons of getting a mortgage in your 70s
The primary inflation measure, the Consumer Price Index (CPI), stood at 3.5% in the 12 months to April, a higher-than-expected increase from the previous month. That means price increases are moving away from the BoE's 2% target.
This week, no major lender cut rates, with the majority hiking mortgages for first-time buyers as the market moves away from the mini price war that pushed deals deep into under-4% territory.
A new mortgage has been launched offering the chance to borrow 100% of a property's value. Gable Mortgages provides home loans that don't require the borrower to deposit. It follows April Mortgages' launch of a similar 100% product.
HSBC (HSBA.L) has a 3.93% rate for a five-year deal, unchanged from the previous week. For those with a Premier Standard account with the lender, this rate is 3.90%.
Looking at the two-year options, the lowest rate is 3.86% with a £999 fee, also unchanged from the previous week.
Both cases assume a 60% loan-to-value (LTV) mortgage, meaning buyers need to have at least 40% for a deposit.
HSBC offers 95% LTV deals, meaning you only need to save for a 5% deposit. However, the rates are much higher, with a two-year fix at 4.97% or 4.81% for a five-year fix.
This is because their financial situation and deposit size determine the rate someone can get. The larger the deposit, the lower the LTV, allowing buyers to access better deals because lenders consider them less risky.
NatWest's (NWG.L) five-year deal is 3.99% with a £1,495 fee, higher than last week's 3.88%.
The cheapest two-year fix deal is 3.94%, again higher than last week's 3.88% deal. You'll need at least a 40% deposit to qualify for the rates in both cases.
At Santander (BNC.L), a five-year fix is 3.93% for first-time buyers, higher than the previous 3.91%. It has a £999 fee, assuming a 40% deposit.
Read more: Average first-time buyers in London need almost £140,000 for a deposit.
For a two-year deal, customers can also secure a 3.90% offer, with the same £999 fee, higher than the previous 3.87%.
Barclays (BARC.L) was the first among major lenders to bring back under-4% deals and currently has a five-year fix at 3.89%, unchanged from last week. For "premier" clients, this rate drops to 3.88%.
The lowest for two-year mortgage deals is 3.87%, also unchanged.
Barclays has launched a mortgage proposition to help new and existing customers access larger loans when purchasing a home. The initiative, known as Mortgage Boost, enables family members or friends to effectively "boost" the amount that can be borrowed toward a property without needing to lend or gift money directly or provide a larger deposit.
Under the scheme, a borrower’s eligibility for a mortgage can increase significantly by including a family member or friend on the application. For example, an individual with a £37,500 annual income and a £30,000 deposit might traditionally be able to borrow up to £168,375, enabling them to purchase a home priced at around £198,375.
However, with Mortgage Boost, the total borrowing potential can rise substantially if a second person, such as a parent, joins the application. In this case, if the second applicant also earns £37,500 a year, the combined income could push the borrowing limit to £270,000, enabling the buyer to afford a home worth up to £300,000.
Nationwide’s (NBS.L) lowest mortgage rate for first-time buyers is 4.19% for a five-year fix, higher than last week's 4.09%.
First-time buyers are currently looking at 3.99% for a two-year fix, again higher than the previous 3.94%.
Read more: UK sellers offer £16,000 discount on average to secure house sale
The lender has announced adjusting its mortgage affordability calculation by reducing stress rates by 0.75 and 1.25 percentage points, helping applicants borrow more, whether buying a first home, moving, or remortgaging.
Applicants can borrow, on average, £28,000 more; however, in some remortgage cases, customers could borrow up to £42,600 more.
Nationwide is reducing its standard stress rate and the rate applied to eligible first-time buyers and home movers fixing their deal for at least five years.
Halifax, the UK’s biggest mortgage lender, offers a five-year rate of 4.03% (also 60% LTV), higher than last week's 3.93%.
The lender, owned by Lloyds (LLOY.L), offers a two-year fixed rate deal at 3.97%, with a £999 fee for first-time buyers, more than the previous 3.87%.
It also offers a 10-year deal with a mortgage rate of 4.78%.
Read more: How to choose where to live as you get older
Halifax has enhanced its five-year fixed mortgage products by increasing borrowing capacity. This improvement allows borrowers to access up to £38,000 more, enabling them to secure larger mortgages based on individual incomes.
Rachel Springall, finance expert at Moneyfacts, said: "The flourishing choice of low-deposit mortgages will no doubt be welcomed by borrowers looking to remortgage or are a first-time buyer.
"The government has been clear that it wants lenders to do more to boost UK growth, and so a rise in product availability for aspiring homeowners is a healthy step in the right direction."
As providers start hiking rates, prospective homeowners are quickly running out of good options. Barclays' (BARC.L) 3.89% is currently the cheapest deal for five-year fixes, while HSBC (HSBA.L) offers the most affordable deal for two-year fixes at 3.86%, though access requires a hefty 40% deposit.
The average UK house price is £297,781, so a 40% deposit equals about £120,000.
A growing number of homeowners in the UK are opting for 35-year or longer mortgage terms, with a significant rise in older borrowers stretching their repayment periods well into their 70s.
Read more: Odds of more Bank of England interest rate cuts fall as food inflation rises
Lender April Mortgages offers buyers the chance to borrow up to six times their income on loans fixed for five to 15 years, from a deposit of 5%. Both those buying alone and those buying with others can apply for the mortgage.
As part of the independent Dutch asset manager DMFCO, the company offers interest rates starting at 5.20% and an application fee of £195.
Skipton Building Society has also said it would allow first-time buyers to borrow up to 5.5 times their income to help more borrowers get on the housing ladder.
Leeds Building Society is increasing the maximum amount that first-time buyers can potentially borrow as a multiple of their earnings with the launch of a new mortgage range. Aspiring homeowners with a minimum household income of £40,000 may now be able to borrow up to 5.5 times their earnings.
Mortgage holders and borrowers have faced record-high repayments in recent years, as the Bank of England's base rate has been passed on by banks and building societies.
According to UK Finance, 1.3 million fixed mortgage deals are set to end in 2025. Many homeowners will hope the Bank of England acts quickly to cut rates more aggressively. At the same time, savers will likely root for rates to remain at or near their current levels.
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