Two and five-year fixed-rate mortgages in UK at highest level for seven months | Mortgages

The average price of two- and five-year fixed-rate mortgages in the UK has hit its highest level for seven months, putting further pressure on borrowers who are reaching the end of their deals.

Data from the financial information firm Moneyfacts showed the cost of a two-year deal for homeowners rising to 6.23% on Monday, up from 6.19% at the end of last week and its highest since last November. Meanwhile, the average cost of a five-year deal rose to 5.86%, from 5.83% on Friday.

The rises mean repayments on a £150,000 mortgage taken at the average two-year rate are now £987.65 a month, compared with £660.90 on the average rate of 2.34% available in December 2021, before the Bank of England began to increase borrowing costs.

The figures came as one of the UK’s largest mortgage lenders, Santander, told brokers it was withdrawing its fixed-rate mortgages tonight and would be replacing them tomorrow with loans at a higher rate.

On Thursday the Bank of England increased interest rates by half a point to 5%, in an attempt to curb inflation.

Many variable-rate mortgage customers faced automatic price rises as their deals are typically linked to the base rate. Fixed-rate customers coming to the end of their deals are also feeling the pinch as the latest crop of deals are all substantially more expensive than those on offer two years ago.

Lenders have been pulling deals from the market and repricing them upwards for several weeks, and Santander, one of the biggest players, has become the latest to announce changes, telling brokers that rates will be going up by “between 0.05% and 0.25%”.

At the same time as increasing its rates for remortgagers and homebuyers, it is also set to drop its cheapest deals, aimed at those with a deposit of 40% or more.

David Hollingworth of broker L&C Mortgages said Santander had recently had some of the best-buy fixed-rates and that the fact that it had been so competitive might be behind the change.

“Any lender staying out there with leading rates will attract substantial volume, so lenders have to price to protect their service levels as well as in reaction to any shift in funding costs,” he said.

Nick Mendes, mortgage technical manager at broker John Charcol, said rates were moving up as the money markets remained uncertain that inflation would soon fall and were pricing in the possibility that base rates would go higher.

But he added that it was important to remember that the Moneyfacts figures “are averages and not reflective of the best deals on the market”. “For example, Furness offer a two-year fixed at 4.49%, as well as a five-year fixed at 4.19%,” he said. “How long these types of deal remain on the market remains to be seen.”

A Santander spokesperson said: “We continually review our products in light of changing market conditions and from tomorrow our repriced mortgage range will be available.

“Customers who have already applied for a mortgage are not impacted by the changes and existing rates are available for new applications until 10pm this evening.”