Average two year fixed mortgage rates are now 2 percentage points higher than at the start of the year, increasing typical monthly payments by an average of £159.
The average two year home loan climbed to 3.46 per cent, while the five year fix rose to 3.5 per cent, according to analysis from L&C Mortgages.
The same figures in January were just 1.3 per cent and 1.55 per cent respectively. On a two year fix, that represents a rise of 166 per cent.
A borrower taking a typical £150,000 repayment mortgage over 25 years at the average two year rate would now face monthly payments of £159 more than at the beginning of the year. This is an annual increase of more than £1,900 compared to January.
Rate rises: Mortgage rates have been nudging higher meaning potential pain for homeowners
The Bank of England is expected to hike interest rates from 1.25 per cent to 1.75 per cent later today and will do nothing to calm the fears of borrowers.
Base rate has risen from 0.1 per cent in November to 1.25 per cent. Lenders typically pass on these rises to their customers.
If it increases as expected it will be at the highest levels since 2008 when the central bank dramatically cut rates amid the global financial crash.
The rise in the base rate is an effort by the bank to tackle inflation which is now predicted to reach 15 per cent by the end of the year,
As well as new borrowers rising interest rates are set to hit homeowners looking to remortgage.
Two years ago, at beginning of August 2020 borrowers could have taken a two year rate with Coventry Building Society with an interest rate of 1.3 per cent at 75 per cent LTV, plus a low fee of £999.
Taking a £225,000 mortgage on £300,000 over 25 years on this deal they would have had monthly payments of £878.87.
If they now remortgage to the current top ten two year average at 3.46 per cent the monthly payments on a remaining balance of £209,566 over remaining 23 years would be £1,102.11 per month, £223 higher than their original deal.
David Hollingworth, associate director at L&C Mortgages said, ‘The mortgage landscape continues to shift rapidly as lenders balance volatile funding conditions and service levels, forcing frequent changes to mortgage products.
‘As a result, mortgage borrowers face a rise in payments, whether as a result of base rate increases or as the protection of their current fixed deal comes to an end.
‘As borrowers brace for another base rate rise this week many are unsurprisingly seeking the shelter of a fixed rate.
‘That offers monthly savings as well as building in security of payment for households already feeling the pinch from other cost of living increases.’
In recognition of the risk, Hollingworth notes that many borrowers are shopping round for a new deal as early as possible in order to lock in lower rates.
And lenders are responding. Homeowners can check how much they would have to pay to fix now with This is Money’s best mortgage rates comparison calculator created with partner L&C.
Raymond Boulger, senior mortgage technical manager at John Charcol, says that lenders are extending the maximum term for product transfers in a bid to keep existing customers.
‘It means that for borrowers looking to remortgage, their provider may allow them to sign a new deal earlier than their agreement limit – traditionally three to four months before the end of the plan – enabling them to secure a lower interest rate ahead of expected future rises.
‘It is relevant that at present several lenders have lower product transfer rates than the rates they offer for new business.
‘It costs less to retain a customer than attract a new one and in particular at the moment with many lenders’ service levels being sub optimal there is a strong incentive to keep existing customers rather than having to replace them with new ones, which its much more time consuming,’ he says.
Interest rates on 2 year fixed rate mortgages have climbed 2% since January placing additional pressure on borrowers
Others warn lenders are also updating the rates they offer alarmingly quickly.
Ashley Thomas, director at mortgage broker, Magni Finance said: ‘Now, lenders are increasing rates and pulling existing products a lot quicker.
‘Where they used to give us at least a day’s notice, this is now reduced to a few hours in some cases.
‘For example, one lender emailed yesterday at 4.30pm stating that they were changing their existing rates by the end of the day.
‘This makes it very challenging to secure a mortgage, so I would advise people to move as quickly as possible.’
The Bank of England is expected to hike rates again this month
Other brokers, including Boulger, report a significant slowdown in the time it is taking banks to process applications as they are overwhelmed by requests from borrowers trying to get ahead of future rate rises.
This, he says, has been the case for some weeks.
Rhys Schofield, managing director of mortgage company Peak Money says ‘A cautionary tale would be the normally very good and competitively priced Nationwide who are currently taking nine working days just to check a payslip or a valuation report.
‘That’s pretty widespread at the moment because lenders are simply struggling to keep up with the pace and the only way they can turn off the taps is to change rates.’
Nationwide said: ‘Our current average timescales are what we’d expect given the high demand we’re seeing in the market.
‘We update timescales on our website on a daily basis so everyone has an up-to-date overview of how long their application might take.’
Boulger adds that gilts – fixed return government bonds that are particularly sensitive to interest rate changes – have had a volatile few months, with swings both ways.
The 10 year gilt yield peaked at 2.62 per cent 6 weeks ago and at the time of writing is 0.7 percentage points lower at 1.92 per cent.
‘The fact many lenders are struggling with service means they have little incentive to cut rates to reflect the fall in funding costs, as the increase in business a lender would see from making themselves more competitive would simply exacerbate their servicing problems,’ he says.
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