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2-year fixed rate average goes over 6% - what now? ASAP

Journalist: Frances Ivens, Telegraph

ended 05. October 2022

MailOnline journalist looking for commentary on what happens following the rapid rate rise of the past 14 days. 

2-year fixed rate average is now 6.07% and 5-year fixed at 5.97%.

What does this mean for the mortgage market? How will it impact house prices? Is anyone a winner? 

10 responses from the Newspage community

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Riz Malik
Independent Financial Adviser at R3 Wealth
We have all been anticipating rate rises this year. However, the biggest hikes in the last week or so have not directly been a result of the Bank of England and were avoidable in my opinion. Even though lenders have been returning to the market this week, their pricing suggests they are on the defensive. Even if they begin to reprice downwards in the coming weeks, we still have two base rate announcements before the year is out. This is not the lead into the festive period I was hoping for or expecting.
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Mike Staton
Director at Staton Mortgages
Whilst it is true that the average rate is high, there are still fixed rates out there as low as 4.24% so seeing a good broker is imperative to getting a decent mortgage, however another option is a base rate tracker with one lender offering 0.75% above the Base rate giving a relatively low rate without any repayment charges should the applicant change their mind and wish to fix in the future With 10 year fixed and 5 year fixed much cheaper than 2 year fixed rates, i think banks believe that rates will drop therefore they are hoping to catch the big fish now and keep them tied in for a long time, to make more money if interest rates drop with higher interest being paid on todays fixed rate or ERCs paid to get out of it. With HSBC also lowering rates today for existing customers, i have a feeling that we may see more lenders follow suit quicker than expected. Just bare in mind that a lot of lenders have already achieved the mortgages they want this year so they are under no pressure to drop rates yet but we may see a reduction in January when lenders want to start winning business again and we have more clarity over the bank of england base rate. The only thing we can be certain of at the moment is uncertainty. Albert Einstein once said, "As far as the laws of mathematics refer to reality, they are not certain; and as far as they are certain, they do not refer to reality", however, you do not need to be a genius to work out that if these interest rates continue to increase, it will lead to more arrears, repossessions and a possible market crash to the likes we have never seen. That is not a reality i want to be a part of
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Gaurav Shukla
Managing Director at Home Me Mortgages
It’s almost hard to believe how sharply rates have increased over the past 14 days, and at a speed many have not witnessed before. Due to the current high level of mortgage rates, I believe the mortgage market will slow down as people will question whether now really is the right time to buy. With monthly payments now outweighing any savings from the stamp duty cut, people may not be able to afford the monthly outgoings, especially as energy bills are increasing as of this month. Where we initially thought house prices may increase with the stamp duty cuts, this is quite the opposite now as it seems a general consensus that there is no confidence in the Chancellor or PM and their policies, which has sped up the interest rate rises. The demand for properties will be much lower than it has been, meaning properties may need to drop down in price in order to gain traction. Sellers are not the winners and buyers may not be able to purchase the properties they want. No one seems to be a winner here, unless you’re in the rich box and can afford the monthly payments and afford to outbid offers. The current situation seems to affect first time buyers more than other buyers, but more importantly, the government and lenders will need to come together for people with existing mortgages at 2%, which are due to end in 2023, who will have no choice but to pay 6%. Are they going to be able to afford the new monthly payments? It may be time for lenders to start considering relaxing their interest-only criteria to allow customers to afford monthly payments in the short term.
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Ashley Thomas
Director at Magni Finance
The increase in rates has been crazy over the past couple of weeks, and it will soon have to get to a point where they stabilise, otherwise it will be unsustainable. The only winners are Labour. They must be watching in delight at the current mayhem. I wonder how many MP's now regret Boris leaving.
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James Miles
Director - Mortgage Adviser at The Mortgage Quarter
This week I've had two separate landlords decide not to buy further properties as it does not make financial sense. I've also had three clients decide not to move to their next home as they're concerned about the increasing strain on their household expenditure. This will surely reduce demand and level out house prices. There's very few winners in these uncertain times. Clearly rates need to be controlled and some leadership shown from the Government as payments are becoming unaffordable. At least lenders' turnaround times won't be as long if things become quieter on the demand side.
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Mark Robinson
Managing Director at Albion Forest Mortgages
The way rates are currently geared tells us that lenders think rates will come down over the next two years and they want people secured in for five years. This is also shown in the interest rates available on 10-year fixed rates currently. Taking out a mortgage today at 5%-6%, it is well worth considering if you would want to be tied into a rate that high for longer than two years. Obviously, whether you want or need a 2-year, 5-year or even 10-year fixed rate will depend on your unique situation and circumstances and you should take advice from your broker.
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Alastair Hoyne
CEO, Finanze Capital at Finanze Capital
The consequences of rising mortgage prices will be brutal in the coming months, to say the least. It is estimated by the Bank of England that more than 2 million homeowners will shift to new mortgage deals once their fixed-rate mortgages expire between today and until 2024. Many homeowners have also resorted to paying early repayment charges to secure new deals despite the high penalties involved. For now, households will have to reduce their non-discretionary purchases to adjust to their monthly mortgage obligations. However, we expect that once financial markets’ uncertainty eases, lenders will relook at their pricing. This begins once the Office for Budget Responsibility’s (OBR) forecast report is published and the government’s fiscal response is finally aligned with the Bank of England's monetary policies.
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Ricky Dosanjh
Director at Reeds Financial
Another day, another lender increase. You would assume these rate increases will slow down sooner or later otherwise we are in for some big problems. With bills increasing across the board, people may find themselves in some really difficult situations, both financially and mentally.
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Jamie Lennox
Director at Dimora Mortgages
There is no doubt a bleak winter lies ahead for millions of householders who may have their mortgage due for renewal in the coming months. Many mortgage holders won't have priced in these large increases into their income and expenditure, as we have become a society that is reliant on cheap money always being available. There will come a point when some households just won't be able to pay these rates and ultimately will be facing the idea they could be forced to sell up their property and downsize. If this happens at scale, there could be a lot of downward pressure on house prices.
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Jonathan Burridge
Founding Adviser at We Are Money
With so many lenders withdrawing from offer fixed rates, those that remain are facing huge volume pressure. As such, pricing is being used as a way of tempering the applications a lender receives. This is supported if you compare the discrepancy between existing borrower rates and those being offered to new customers. So whilst we are likely to see further interest rate rises over the immediate future, the pricing today is not reflective of where it is likely to be when the markets settle. There is a good argument for borrowers to consider tracker or discount products without early settlement charges as an option. The longer term forecast is still to uncertain to predict.