The Bank of England raised interest rates in June from 4.5% to 5%.
The significant 0.50 percentage point increase had been widely feared following the announcement from the Office for National Statistics that inflation had remained at 8.7% in May – more than four times the government’s target.
June’s rate rise marks the 13th since December 2021 when Bank rate stood at just 0.1%. It puts Bank rate at its highest level since 2008 and has applied further pressure on the cost of borrowing.
Volatility and uncertainty
Mortgage rates first rocketed after last September’s mini-Budget, which triggered market uncertainty and sent the pound crashing to historic lows. At the time, major lenders including NatWest, Barclays, Halifax and Virgin Money pulled deals and brought them back to market at higher prices.
While mortgages costs have undergone a correction since then, there’s been a more recent flurry of lenders putting up the cost of deals as Bank rate continues its relentless climb in the face of high inflation (more on this below).
Average and best costs of popular deals
According to our mortgage partner, Better.co.uk, the average cost* of a two-year fixed rate deal today stands at 5.69%. The average cost of a three-year deal is 5.39%, while five-year fixes now stand at 5.31%. Just yesterday, both three- and five-year deals were priced at 5.29% on average.
Many mortgage lenders had already ‘priced in’ the most recent Bank rate rise into their costs. However, lenders across the board are continuing to raise fixed rates and pull deals.
According to Better.co.uk, the most competitive two-year fixed rate today stands at 4.99%. The best three-year fix is priced at 4.93%, and the best five-year at 4.82%. The average two-year tracker rate today is at 5.43%, which compares to 4.89% for the leading deal of its kind.
Lenders’ typical standard variable rate (SVR) today stands at 7.34%, according to Better.co.uk. Average SVRs a year ago in May 2022 were just 4.53%.
On 1 June, there were 4,967 residential mortgage deals on the market, according to Moneyfacts. The number of available mortgages had plummeted to around 2,560 following last Autumn’s mini-Budget.
Interest rates and mortgages
So what does the latest June Bank rate rise mean for the cost of mortgages?
The estimated 1.4 million homeowners (according trade body, UK Finance) on variable rate deals, such as base rate trackers, will see an almost immediate rise in their monthly repayments following the latest Bank rate rise to 5%.
As an example, a tracker rate rising from 5% to 5.5% costs around an extra £58 a month on a £200,000 loan taken over 25 years, with monthly repayments rising from £1,170 to £1,228.
Borrowers on fixed-rate deals, where the interest rate is locked in for, say, two or five years, won’t see any difference in their monthly payments. However, when the deal expires – as will be the case for over 500,000 mortgage holders during the remainder of 2023 – available mortgage deals will be much more expensive.
You can work out the monthly cost of a mortgage against various interest rates with our Mortgage Calculator.
House prices and Stamp Duty
The latest major house price indices are all reporting falls in the value of UK property.
Nationwide’s house price report, published today (30 June), showed house prices fell by 3.5% in the 12 months to June, slightly steeper than the 3.4% annual drop posted in May. On a monthly basis, prices edged up 0.1% according the building society, taking average UK property prices to £262,239.
Halifax’s most recent house price report (published on 7 June) showed a fall in annual house prices for the first time since 2012. The cost of an average home in May (£286,532) was 1% lower than in May last year. On a monthly basis, prices remained flat, said Halifax.
Zoopla reported price falls of 1.3% in the six months to April, although still reports positive annual inflation of 1.9%.
Stamp Duty cuts announced in last Autumn’s mini-Budget raised the nil-rate band on the purchase of a property from £125,000 to £250,000. While u-turns were made on the other tax breaks announced under former Prime Minister Liz Truss, this one remained in place.
Why are interest rates rising?
The Bank’s MPC uses interest hikes as a means of cooling the economy and taming rising inflation.
The Consumer Prices Index (CPI) measure of inflation remained unbudged at 8.7% in the 12 months to May, the Office For National Statstics (ONS) announced today. While this is some way off its peak of 11.1% posted back in October, it should viewed in the context the government’s inflation target for the Bank of England which is just 2%.
One of the main longer-term drivers behind rising inflation is the cost of energy. Since 1 April, 2023 the energy price cap, as set by regulator Ofgem, has been pegged at £3,280. The cost refers to an annual bill for a dual fuel household paying by direct debit based on typical consumption.
However, the government’s own Energy Price Guarantee (EPG), which was implemented to protect households from rocketing energy costs, applies instead. Currently, the EPG is set at £2,500 a year.
The energy price cap will fall as of 1 July from £3,280 to £2,074. As this is below the level of the EPG, the price cap will once again apply and determine the cost of energy for households in England, Wales and Scotland until the end of September.
A new cap will then take effect from 1 October.
What mortgage deals are available?
With upwardly-mobile Bank rates, keeping track of mortgage costs is challenging – especially when rates change, and deals can be pulled, on a daily basis.
One simple way is use our mortgage tables, powered by Better.co.uk.
To find out what deals are available at today’s rates for the kind of mortgage you’re after, you’ll need to enter your personal criteria into the table below. Here’s what to do:
- Select whether the mortgage is to fund a house purchase or if it’s a remortgage for an existing property
- Enter the property value and the mortgage amount you require. This will automatically generate a percentage which is known as your ‘loan to value’. The lower your loan to value, the cheaper the mortgage rates available
- Tick the relevant box if it’s a buy-to-let or interest-only mortgage (you’ll need a repayment strategy in place for these deals), or if you’re looking for a mortgage to fund a shared ownership property
- Finally, filter your search by the type of mortgage you want, for example a two- or five-year fix or tracker. The filter is set to a complete mortgage term of 25 years but you can change this if required.
Here’s a live table of the mortgage deals available today.
What else do I need to know?
Mortgage deals offering the cheapest rates usually come with fees attached. You can opt to pay these upfront or add them to the loan. To factor in the cost of the fee, order your the results by ‘initial period cost’ (in the ‘Sorted by’ dropdown).
Alternatively, you can order results by initial rate, lowest fee or monthly repayment – even by the lender’s ‘follow on’ rate that the deal will revert to at the end of the term.
The very cheapest are reserved for bigger deposit amounts, usually of 60% of the property value or more. And, in all cases, you will need a sufficient income and clean credit history to be accepted for a mortgage.
If you want to see what your monthly mortgage payments might look like in different scenarios while overlaid with household bills, our Mortgage Calculator will crunch the numbers.
When can I start a remortgage?
Once issued, mortgage offers tend to be valid for six months, although a handful of lenders such as Skipton Building Society honour offers for up to 12 months. If you are looking to remortgage your current home, this means you can lock in a rate today – at no cost and with no strings attached.
How are average mortgage costs calculated?
*Average mortgage costs can vary between sources depending on how the data is gathered. Better.co.uk’s data refers to the average cost of the primary fixed rate mortgage recommendation that is issued to applicants based on their circumstances from its 100-plus panel of lenders.
The data counts remortgage and purchase loans but excludes SVRs, adverse credit, self-build and shared ownership. Data is collected at the end of each business day.
Better.co.uk targets applicants with a good credit history. Lower loan-to-values (under 85%) account for a significant portion of its business which can translate into cheaper loan rates.
Its average fixed rate costs may therefore appear lower than some others quoted on the market.
Source: forbes.com