Average 2 year fix passes 6.5% despite budget u-turn

The recent trend of increasing fixed rate mortgage costs continued this week as the average 2 year mortgage rates hit 6.53%, rising above the 14-year high set last week. The average 5-year rate now sits at 6.36% according to Bloomberg.

Chancellor Jeremy Hunt scrapped most of the proposed mini budget (including the repeal of IR35 changes) on Monday, prompting a surge in UK government bonds but as yet, there has been little to no improvement in mortgage interest rates.

But why has the mortgage market not yet reacted?

Andy McBride, Director at Cleerly had this to say

“Mortgage borrowing rates are linked to swap rates and swap rates are controlled by market sentiment. Confidence in the market leads to lower borrowing costs. Whilst stability in the swap rate market may not necessarily reduce the cost of borrowing for time yet, the hope is the that the pace of the rises slows”

In a market that seems to be changing daily, we expect a few more twist and turns yet. The facts remain that, based on a mortgage of £200,000 borrowed for 25 years and assuming a rate of 6%, a two-year fixed-rate mortgage will cost about £10,000 more during the fixed period than the same product issued last December, when rates were about 2.34%, according to Moneyfacts data.

Clients looking to purchase a new property or secure a new product would do well to secure rates as early as possible. Locking in a rate ensure you are protected if the market takes a turn for the worse.

Andy McBride continued:

“Our advice to borrowers remains the same: contact your mortgage broker as soon as possible to review your options. In the event mortgage rates do fall, most lenders will enable you to change to the lower product prior to completion”

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