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Average two-year fixed mortgage rate goes above 4% for the first time in nearly a decade

Typical two-year fixed mortgage rate goes above 4% for the first time in nearly a decade as inflation continues to soar

  •  Average 2-year fixed mortgage is at 4.09% according to Moneyfacts
  •  A fixed five-year mortgage has also risen from 2.75% to 4.24% in just one year
  • The Bank of England increased the base rate to 1.75% on 4 August
  •  Rates are expected to continue rising as the Bank tackles soaring inflation

The average interest rate on a two-year fixed mortgage has exceeded 4 per cent for the first time in almost a decade, following the Bank of England’s latest base rate hike.

An average two-year fixed rate mortgage is now at 4.09 per cent, according to Moneyfacts: 62.3 per cent more expensive than the same time last year when it was at 2.52 per cent. 

It marks the first time the rate has breached 4 per cent since February 2013 when it hit 4.09 per cent.

Rate rises: The average 2-year fixed mortgage rate has risen by 1.75% since December 2021 when it stood at 2.34%

A typical fixed five-year mortgage – now a more popular option as buyers seek to shield themselves from further rate rises – has risen from 2.75 per cent last August to 4.24 per cent today. 

Mortgage rates have been climbing since December 2021 when the Bank of England began increasing the base rate in a bid to combat soaring inflation. 

Over three quarters (76 per cent) of borrowers are on a fixed rate – and so the pain from higher rates will filter through slowly as their deals come to an end and they remortgage. 

Eleanor Williams, finance expert at Moneyfacts, said: ‘Since the start of this month, the overall average two-year fixed rate has already increased by 0.14 per cent and has now reached 4.09 per cent.

‘In December 2021 this rate sat at 2.34 per cent, so has risen by 1.75 per cent since then, 0.10 per cent more than base rate has increased over the same period. 

‘The overall five-year fixed average has gone up by 0.16 per cent since the first of this month to 4.24 per cent, a rise of 1.60 per cent compared to December 2021 (2.64 per cent).’

Those on standard variable rate mortgages can see their rate increased whenever their lender chooses, and these have been moving up alongside the base. 

Earlier this month the Bank of England increased its base interest rate by 0.5 per cent – the biggest single increase in 27 years.

It is the latest in a string of rises. The base rate has risen from 0.1 per cent in December to 1.75 per cent now, and the Bank’s Monetary Policy Committee has signalled it is willing to go further in order to tackle soaring inflation.

Forecast: Citi says CPI inflation will peak at 18% early next year and will remain in double digits for most of 2023

Forecast: Citi says CPI inflation will peak at 18% early next year and will remain in double digits for most of 2023

The UK inflation rate is set to peak at a near 50-year-high of 18 per cent early next year with energy prices set to soar, investment bank Citi has warned.  

A 3 per cent base rate could see five-year fixed mortgages averaging 4.75 per cent. 

Two years ago during the pandemic mortgages reached historic lows of as little as 0.89 per cent, as the housing market boomed. 

In September 2020 the average two-year fixed rate stood at 2.24 per cent – 82.5 per cent lower than today, according to MoneyFacts.

To help our readers find the best mortgage, This is Money has partnered with independent fee-free broker L&C.

Our mortgage calculator powered by L&C can let you filter deals to see which ones suit you best. 

Best mortgage rates and how to find them

Mortgage rates have risen substantially as the Bank of England’s base rate has climbed rapidly.

If you are looking to buy your first home, move or remortgage, it’s important to get good independent mortgage advice from a broker who can help you find the best deal. 

To help our readers find the best mortgage, This is Money has partnered with independent fee-free broker L&C.

Our mortgage calculator powered by L&C can let you filter deals to see which ones suit your home’s value and level of deposit.

You can also compare different mortgage fixed rate lengths, from two-year fixes, to five-year fixes and ten-year fixes, with monthly and total costs shown.

Use the tool at the link below to compare the best deals, factoring in both fees and rates. You can also start an application online in your own time and save it as you go along.

> Compare the best mortgage deals available now

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Read more at DailyMail.co.uk