Mortgage rates: Average five-year fix rises above 6% - JW Test

It comes after the Bank of England raised interest rates to a 15-year high of 5% last month, as it tries to bring down inflation.

Mortgage lenders have been increasing rates and withdrawing deals recently, driving up costs for homeowners.

Prime Minister Rishi Sunak has urged homeowners to "hold their nerve" over rising rates.

On Tuesday, the average rate for a five-year fixed mortgage stood at 6.01%, according to the financial information service Moneyfacts. The average two-year fixed deal is now 6.47%.

The last time those rates both topped 6% was in November last year, when interest rates rose sharply in the aftermath of then-Chancellor Kwasi Kwarteng's mini-budget.

But after a period of calm they have climbed steadily again in recent weeks.

However, while mortgage rates have risen rapidly, the rates on savings accounts have not gone up as fast.

With the average rate for a two-year mortgage now 6.47%, the average easy access savings rate is 2.45%, according to Moneyfacts. That is a gap of 4.02 percentage points.

Bank bosses have been summoned by the Financial Conduct Authority to explain the low saving rates on offer.

 

A year ago, typical rates on fixed mortgage deals were closer to 3%.

 

The rapid increase in rates is leaving people like Rose Askwith facing steep rises in their monthly payments.

The 38-year-old primary school teacher from Romsey in Kent will see her monthly payments go from £550 to £1,200 if she is put on a variable rate at the end of July.

She applied for a mortgage holiday for August but was refused, so is now racing to complete a new fixed deal.

The lowest she could find would keep monthly payments down to £800, but extends her mortgage term to 35 years.

"At the moment my biggest fear is August," she says. But even if she manages to get the new fix, things will be tight.

"The scary thing is being a single mum and making sure the children have a roof over their heads.

"Having to find the extra £300 that would have gone to the kids, or food, or funding my son at university. I've had to say, 'I cannot support you how I would want to.'"

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The Bank of England has raised interest rates 13 times since December 2021.

The idea is that by making it more expensive for people to borrow money, and more worthwhile for them to save, they will spend less and price increases will cool.

But inflation - which measures the rate at which prices are rising - remained stubbornly high at 8.7% in May.

The prime minister has pledged to halve inflation by the end of the year, and has backed the Bank of England's rate rises.

The Bank rate is a key influence on mortgage rates. Expectations that the Bank could continue to raise rates, and that they will stay higher for longer, have been reflected in the funding cost of mortgages, hitting new borrowers, and those trying to remortgage.

Lenders have been pulling deals and putting up rates at short notice, while some have been inundated with demand and so forced to pull or raise rates again.

More than 400,000 people will see their existing fixed deals end between July and September, a comparatively high number. Many face the prospect of having to budget for monthly repayments that are hundreds of pounds more expensive than they have become accustomed to.