Short-term fixed rates see sharpest monthly rise in over a decade

Rozi Jones
14th September 2020
calculator rates mortgage house
"This is the largest monthly rate rise in over a decade, with the last similar increase seen in July 2009 in the aftermath of the last financial crash."

Average mortgage rates have increased again month-on-month, with the average two-year fixed rate increasing by 0.16 - the largest monthly rise since July 2009, according to the latest Moneyfacts data.

Over the last month, the average five-year fixed rate has increased by 0.15% – the largest monthly rate increase in this sector since March 2011. However, these rates currently remain 0.19% and 0.25% lower respectively than in March.

The average fee charged on all mortgage products has increased for the fourth consecutive month to sit at £1,032, the highest on Moneyfacts records since February 2013.

Overall product availability has reduced further in the last month, with 114 fewer products available in September than were offered at the start of August. Compared to March, when 5,222 total residential products were available, this shows a 54% contraction in the market.

Eleanor Williams, finance expert at Moneyfacts, said: “While recent surveys suggest that housing market activity has continued to increase over August, consumers may be disappointed to see that average mortgage rates have risen. The average two-year fixed rate for all LTVs has increased from 2.08% to 2.24% over the course of the last month. According to our records, at 0.16%, this is the largest monthly rate rise in over a decade, with the last similar increase seen in July 2009 in the aftermath of the last financial crash. The equivalent five-year fixed rate has seen a similar ascent of 0.15% to 2.49%, which is the largest monthly rate increase since March 2011, approximately a year prior to the launch of the Funding for Lending Scheme.

“While these rates are still some 0.19% and 0.25% lower than prior to lockdown, the level of increases seem to have gathered pace, doubling over the last two months. If these were to carry on their current trajectory, within the next couple of months, consumers could face average rates in excess of those available prior to the onset of the pandemic.

“We have seen these notable rate increases occur while there remains limited product availability in the traditionally higher-rate, higher-LTV brackets, which prompts the consideration that once deals in those sectors are relaunched, average rates have the potential to increase even further. Indeed, with September beginning with 2,412 deals live across all LTVs in the residential mortgage sector, borrowers currently face the lowest level of choice since May 2010 according to our records, and this represents a 54% fall in product choice since March 2020.

“Although mortgage lenders may have anticipated tighter margins in 2020 following the intense competition in the market over recent years, the unexpected impact of the global crisis has resulted in these constricting even further. During the first phase of the coronavirus pandemic, the industry leapt into action to support their existing customers with payment holidays and various other relief measures. However, we are now approaching the end of the furlough scheme, and with the potential impact this may have on household income for many, as well as the possibility of further concerns around a second wave and subsequent restrictions, lenders are bracing themselves for wide-spread financial concern.

“In light of supporting schemes unwinding, it is unsurprising to see providers tweaking their product ranges, and alongside the increase in average rates, mortgage borrowers may wish to note that fees have also increased for the fourth consecutive month. At £1,032, the average fee is currently the highest we have seen since February 2013 and sits some £7 higher than in August 2020 and £23 more than was charged in March 2020."


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