Mortgage costs have jumped this week as under 4%-deals disappeared from the market amid warnings that around 4.4 million UK households are set to face increases in their house payments over the next three years.
The average two-year fixed mortgage rate now stands at 5.2%, higher than the previous 5.09%, while a five-year deal has an average rate of 5.03%, a steep increase from the previous 4.89%, according to figures from Uswitch.
In addition, between 1 million and 1.5 million people are expected to see a second rate increase, having already fixed their mortgages at higher prices since interest rates began to rise in the second half of 2021. About 31% of all mortgage holders, or approximately 2.7 million people, are predicted to refinance at rates higher than 3% for the first time before the final quarter of 2027.
Rob Clifford, chief executive at Stonebridge, said: “While the Bank of England has started to cut interest rates again, it’s clear from the data that most borrowers are yet to see the benefits from reduced borrowing costs.
“With house prices still rising and mortgage rates elevated, homeowners are now spending more than two-fifths of their salary on mortgage payments — well above the historical average.
Despite the gloomy outlook, some major lenders such as HSBC and Barclays have made some rate cuts this week.
Nick Mendes of broker John Charcol said: “HSBC’s adjustments reflect a steadier market, with swap rates stabilising and holding lower in recent days.”
He added: “For borrowers, this is an encouraging development to start December. Whether you’re locking in a fixed deal for a new home, borrowing more, or securing a better rate for an energy-efficient property, these reductions are well-timed.”
Looking at the two-year options, the lowest rate comes in at 4.32% with a £999 fee, which is also unchanged
Both cases assume a 60% LTV mortgage, meaning buyers need to have at least 40% for a deposit.
HSBC offers 95% LTV deals, meaning you only need to save for a 5% deposit. The rates are much higher, however, with a two-year fix coming in at 5.85% or 5.36% for a five-year fix.
This is because the rate someone can get will be determined by their financial situation and the size of their deposit. The larger the deposit, the lower the LTV, allowing buyers to access better deals because lenders consider them less risky.
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Despite not touching its cheapest deals, the lender did push through with some reductions. Key changes include cuts to its popular fee saver and standard products, including two-year Fixed Fee Saver at 80%, 85%, 90%, and 95% LTV, five-year Fixed Premier Exclusive at 90% LTV, three-year Fixed Fee Saver for international residential borrowers at 70% and 75% LTV. These reductions apply to energy-efficient homes rated ‘A’ or ‘B’ on the energy performance certificate (EPC) scale, and cashback remortgage products are also included.
NatWest (NWG.L) is offering 4.24% for a five-year deal with a £1,495 fee, unchanged from the previous week.
For a two-year fix, the cheapest deal comes in at 4.32%, also unchanged. In both cases, you'll need at least a 40% deposit to qualify for the rates.
At Santander (BNC.L) a five-year fix comes in at 4.25% with a £999 fee, assuming you have a 40% deposit — again, unchanged from the previous week.
For a two-year deal, the cheapest customers can get is 4.30% with the same £999 fee, which is the same as before.
Barclays mortgage rates
Barclays (BARC.L) was the only lender to cut rates last week and has kept those deals. A five-year fix now comes in at 4.18%. When it comes to two-year mortgage deals, the lowest you can get is 4.23%.
At the time, Mark Arnold, head of mortgage and savings at Barclays said: “I’m delighted we’re able to decrease core mortgage rates again, after what has been a very volatile period in the swap markets.
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“As we have done during the course of this year, when we see an opportunity in the swap markets we will act swiftly to pass on the benefit to our mortgage customers.”
Nationwide mortgage rates
Nationwide (NBS.L) is offering a five-year fix at 4.19%, which comes with a £999 fee and requires a 40% deposit. Same as the previous deal.
Nationwide offers a two-year fixed rate for home purchase at 4.34% with a £999 fee — also for borrowers with a 40% deposit. Again, unchanged from the previous week.
Halifax mortgage rates
Halifax, the UK’s biggest mortgage lender, offers a five-year rate for 4.18% (also 60% LTV), which is unchanged from the previous week.
The lender, owned by Lloyds (LLOY.L) has a two-year fixed rate deal coming in at 4.23%, with a £999 fee for first-time buyers, which is also unchanged.
It also offers a 10-year deal with a mortgage rate of 4.58%.
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The lender has announced the launch of a new 1.5-year fixed-rate remortgage product in response to growing demand among borrowers for shorter term deals.
"By skipping free legals, Halifax appears to be weeding out speculative applications, but the cashback offer softens the blow for genuine borrowers," Iain Swatton, the director of Exemplar Financial Services, told Newspage.
"It's a calculated move that offers flexibility and shows Halifax is tuned into market sentiment. The question now is whether borrowers are ready to buy into this short-term strategy."
Shorter-term fixes offer certainty over monthly payments while also allowing households to switch to a new deal sooner to capitalise on lower rates.
With mortgages below 4% no longer on the market, prospective homeowners are back to limited choices when it comes to finding a good deal.
HSBC has the cheapest deal on the market. However, its 4.15% offer requires a 40% deposit, so you will need a hefty amount of cash upfront to secure the deal. Barclays and Halifax are close behind, both offering a 4.18% deal for a five-year fix.
Given the average UK house price sits at £292,505, a 40% deposit equates to about £117,000.
Borrowers would need to spread their home loans over more than 70 years to afford the same mortgages on offer two years ago, banks have said.
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There is also a new mortgage product promising to help first-time buyers get on the property ladder with a £5,000 deposit. The deal is offered by Yorkshire Building Society to buyers across England, Scotland and Wales, allowing them to purchase a property valued at up to £500,000.
This means first-time buyers could get on the ladder with as little as a 1% deposit.
Also, lender April Mortgages is offering buyers the chance to borrow up to six times their income on loans fixed for five to 15 years, from a deposit of 5%. Both those buying alone and those buying with others can apply for the mortgage.
The company, which is part of an independent Dutch asset manager DMFCO has interest rates starting at 5.20%, with an application fee of £195.
Skipton Building Society has also said it would allow first-time buyers to borrow up to five-and-a-half times their income, in an effort to support more borrowers on to the housing ladder.
Leeds Building Society is increasing the maximum amount that first-time buyers can potentially borrow as a multiple of their earnings, with the launch of a new mortgage range. Aspiring homeowners with a minimum household income of £40,000 may now be able to borrow up to 5.5 times their earnings.
Mortgage holders and debt borrowers have been forced to pay record-high repayments in recent years due to the UK's hiked base rate being passed onto customers by banks and building societies. Until now, the consensus was that interest rates have peaked and that 2024 will see rate cuts as inflation eases.
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MPowered Mortgages' head of product, Peter Stimson, said: “The return of inflationary pressure means the Bank of England is likely to adopt a ‘wait and see’ approach on any further Base Rate reductions, not just in December, but in the immediate months following as well.
“While this was to a large extent expected, it doesn’t offer any relief to mortgage lenders and is unlikely to allow them to reduce the interest rates they offer to new customers in the run up to Christmas.”
About 1.6 million existing borrowers have relatively cheap fixed-rate deals expiring this year.
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