Rising Mortgage Costs Despite Interest Rate Cuts
By Mark Carney. December 14, 2024.
The average rate for a two-year fixed mortgage has now reached 5.5%, a significant increase. Major lenders such as Barclays, HSBC, NatWest, and Nationwide have all raised the rates on their new fixed-rate deals in recent days, adding to the financial strain on borrowers.
This shift in rates has caused concern for homeowners and prospective buyers who were hoping for continued declines in mortgage costs. While the Bank of England’s recent rate cut was expected to ease borrowing costs, other economic factors, including decisions made in the latest government Budget, have contributed to rising borrowing costs. Mortgage rates can impact borrowers in various ways, depending on the type of mortgage they
How Mortgage Rates A ect Borrowers
have. Tracker and variable rate mortgages tend to move in line with the Bank of England’s base rate. However, more than 80% of mortgage holders are on fixed-rate deals.
For those with fixed-rate mortgages, the interest rate remains the same throughout the deal period, typically two or five years, until it expires. This provides some stability for borrowers, but it also means that many will only feel the e ects of rising rates when they need to renew or replace their current deal.
An estimated 800,000 fixed-rate mortgages, which currently have an interest rate of 3% or below, are set to expire each year through 2027. As these deals end, borrowers will likely face higher rates when they remortgage, leading to an increase in monthly payments.
Impact on First-Time Buyers
First-time homebuyers, many of whom are hoping for lower mortgage rates, will also be a ected by the rise in borrowing costs. Higher rates make it more expensive to secure a mortgage, potentially putting homeownership out of reach for some.
In summary, while the Bank of England’s interest rate cut was anticipated to reduce borrowing costs, other economic factors have led to an increase in mortgage rates. Borrowers, especially those with fixed-rate deals expiring in the coming years, will likely face higher costs when they need to renew their mortgages, adding to the financial burden for many.
What should you do?
You should speak to you mortgage broker if you have any concerns. They can provide guidance on managing your mortgage and navigating changes in any changes to your financial circumstances.