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Mortgage and savings rates volatile despite base rate hold, says website

Mortgage and savings rates have been volatile in recent months despite the Bank of England base rate being left unchanged (Peter Byrne/PA)
Mortgage and savings rates have been volatile in recent months despite the Bank of England base rate being left unchanged (Peter Byrne/PA)

Mortgage and savings rates have been volatile in recent months despite the Bank of England base rate being left unchanged, according to a financial information website.

The analysis was released as the Bank of England base rate was left on hold at 5.25% on Thursday, despite inflation having returned to a 2% target last month, for the first time since July 2021.

Moneyfactscompare.co.uk said that the average two-year fixed mortgage rate on the market crept up from 5.91% at the start of May to 5.93% at the start of June, having fallen from 6.04% at the start of December 2023.

The average five-year fixed-rate mortgage on the market edged up from 5.48% to 5.50% between the start of May and the start of June, having fallen from 5.65% at the start of December 2023.

The average standard variable rate (SVR), which borrowers end up on when their initial deal ends, stands at 8.18%, which is unchanged month-on-month and slightly down from 8.19% in December 2023.

Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said: “The rising cost of mortgages may cause deep concern for borrowers about to come off a fixed-rate deal and needing to refinance.

“Affordability is a pressing point for both homeowners looking to refinance and new buyers, so those struggling to see how they can afford mortgage repayments will no doubt be desperate for interest rates to come down.

Homeowners unsure on whether to lock into a new fixed-rate mortgage may still find it more affordable than falling onto a standard variable rate, which stands above 8%.

“This rate has almost doubled since the Bank of England started increasing base rate back in December 2021.”

According to calculations from Moneyfactscompare.co.uk, a mortgage holder on the current average SVR could end up paying £287 more per month compared with if they were on an average two-year fixed-rate mortgage.

The calculations were based on a £200,000 mortgage borrowed over a 25-year term on a repayment basis, with SVR repayment of £1,567 per month, versus £1,280 per month on a two-year fixed rate.

Ms Springall said that due to volatility in swap rates, which are used by lenders to price mortgages, lender have been increasing fixed mortgage rates, as well as withdrawing some deals priced below 5%.

She continued: “As a result, the average two-year fixed-rate is nearing where it stood six months ago, undoing the positive rate cut momentum seen during the first quarter of 2024.

“The average five-year fixed rate has remained above 5% since June 2023, dipping above and below 6% over the past six months.

“At present, it’s cheaper to lock into a five-year fixed mortgage than a two-year deal, based on average rates, which has been the case since October 2022.

“First-time buyers who are struggling to get their foot onto the property ladder and don’t have the ‘bank of mum and dad’ to lean on may feel getting a mortgage is too far out of reach right now.”

Around 1.6 million fixed-rate mortgages are due to end or have already ended at some point in 2024, according to trade association UK Finance.

Recent Bank of England figures showed the total value of outstanding mortgage balances with arrears had reached its highest level since 2014.

In the first quarter of 2024, the value of outstanding mortgage balances with arrears increased by 4.2% from the previous quarter, to £21.3 billion, according to the mortgage lenders and administrators statistics.

In another sign of the affordability crunch, recent UK Finance figures have also shown that around one in five new first-time buyers took out mortgage terms stretching beyond 35 years in the first quarter of this year.

Some 21% of people taking their first step on the property ladder had home loans lasting for more than 35 years, UK Finance said.

Stretching out mortgages for longer is one way of making monthly repayments more affordable, although borrowers could pay more in interest charges over the longer-term.

Looking at the savings market, the average easy access rate was 3.12% at the start of June, slightly up from 3.11% at the start of May but down from 3.18% at the start of December, according to figures from Moneyfactscompare.co.uk.

The average easy access Isa rate stands at 3.31% – the same as it was at the start of December but slightly down on 3.33% at the start of May.

Ms Springall added: “Savers looking for a flexible pot to store their hard-earned cash may feel relieved that rates have not fallen too much over the past six months.

“The top rate tables continue to be dominated by challenger banks and building societies, but with the average rate on easy access accounts around 3%, there will be many savers out there getting a poor return.”

She added: “Consumers would be wise to review their rate if they have not done so over the past six to 12 months. Loyalty does not always pay.”

David Murray, financial planning expert at abrdn, said: “While no cut to interest rates is good news for savers, home owners and would-be-first-time buyers will likely see no change – or even a rise – in mortgage rates, which will provide plenty of heartache for those that have been pinning their hopes on a June drop.”

Nathan Emerson, CEO of property professionals’ body Propertymark, said: “Propertymark remain keen to see rates reduced when circumstances allow and for this to then translate into competitive mortgage deals from lenders at the first opportunity.”

Bank of England governor Andrew Bailey said policymakers “need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25% for now”.

David Hollingworth, associate director at L&C Mortgages, said: “Mortgage rates are showing more stability and although they continue to nudge up and down as lenders adjust, they remain substantially below the highs of last summer when rates spiked.

“Those holding out in hope of a rapid fall in mortgage rates may have a wait on their hands.”

Lucian Cook, head of residential research at property firm Savills, said: “The first rate cut will be vital in boosting consumer confidence. Even if it doesn’t immediately change the headline cost of fixed rate mortgages, it will begin to make it easier for borrowers to meet banks’ affordability tests, which are more closely linked to the rates banks offer when such deals come to an end.

“In turn, that is likely to make the market progressively less dependent on the cash and equity-rich buyers, allowing those who have put off plans to trade up the housing ladder over the past two years to step back into the market.”