Anxiety has ramped up in the housing market as the Bank of England (BoE) pulled the trigger on another interest rate rise in June , announcing a 0.5% hike to 5%, prompting mortgage costs to rise to seven-month highs.
Mortgage rates have now reached a 15-year high, surpassing the levels seen last autumn after the chaotic Liz Truss mini-budget.
A typical two-year deal has risen to 6.66%, up from 6.63% on Monday, according to data provider Moneyfacts.
This is the highest level since the 2008 financial crisis and above the 6.65% peak rates hit on October 20 2022, amid the turmoil that followed Truss and Kwasi Kwarteng’s budget.
The average five-year fixed mortgage rate rose to 6.17% on Tuesday from 6.13% on Monday.
Moneyfacts said there were fewer deals available, a total of 4,344 residential mortgage products, down from 4,631 on Monday.
Lenders have been left looking at their options as the volume of customers in need of support has increased, and people try to lock in better long-term deals.
The Resolution Foundation said earlier in June that mortgages are set to rise by £2,900 a year by 2024.
Banks are making cautious moves as volatility in swap rate markets loom. Lenders typically use these rates to price mortgages.
Mortgage rates have been rising since data last month showed that inflation was not coming down as quickly as expected.
Surging mortgage rates have been pushing record numbers of first-time buyers to take lengthier loans of around 30 years, in a bid to make their monthly payments more affordable.
Just under a fifth (19%) of all loans taken out by first-time buyers in March were for 35 years or longer, while more than half took a loan of over 30 years, figures from trade body UK Finance show.
HSBC (HSBA.L) shifted its mortgage rates multiple times in the last two weeks, pulling some deals as demand surged ahead of the next round of interest rate news.
The bank said this was “to ensure that [it] can stay within operational capacity and meet customer service commitments.”
This Tuesday, the bank had a two-year fixed standard deal that came with an initial interest rate of 5.94% fixed until October 2025, followed by a variable rate "currently" at 6.99%.
For the same deal but three years, the initial interest rate stands at 5.44% before jumping to the variable rate of 6.99%.
For five years, prospective homebuyers can get a fixed rate of 5.34% before seeing it surge to a variable rate which, again, currently sits at 6.99%. All the above options are for 75% loan-to-value (LTV) deals.
A fixed-rate mortgage means that your payments will stay the same until the end date of the fixed-rate period, even if interest rates change.
Nationwide and Clydesdale Bank
Nationwide (NBS.L), Britain's largest building society, also hiked some fixed mortgage rates for new borrowers. It said it needed to increase fixed rates to ensure prices remain sustainable.
It previously increased selected fixed-rate deals for new borrowing, too, while it reduced some rates on tracker mortgages. Even before the BoE's announcement, it implemented increases of 0.7 percentage points.
Currently, a mortgage from Nationwide of £175,000 over a term of 31 years on an initial two-year fixed rate at 6.24% (fixed) would require 24 monthly payments of £1,064.62 and 348 monthly payments of £1,263.74 based on a Standard Mortgage Rate currently 7.99% (variable).
Last month, the bank warned of a jump in mortgage arrears as interest rates crept up.
A £350,000 house with a £90,000 deposit at Lloyds would secure a 25-year mortgage at an initial rate of 6.11% for those going for a two-year fixed rate and 5.64% if choosing a five-year deal. This would bring monthly mortgage payments to £1,693 and £1,616 respectively.
After the initial period of fixed rates, all of Lloyds mortgages will revert to the current variable rate of 8.49%. Last week this rate stood at 7.99%.
Halifax Intermediaries also upped fixed rates. To get a two-year fixed rate mortgage with the same terms as above (£350,000 property), the initial rate is 5.81%. After October 2025, the variable rate of 8.49% kicks in.
Barclays (BARC.L) CEO CS Venkatakrishnan said recently that homeowners and renters are set for a "huge income shock" due to rate rises. He estimated that payments by mortgage holders and tenants will take a chunk of between 28% and 30% out of their income, compared with 20% in previous years.
At the start of June the bank raised its rates, with the UK Residential SVR increasing from 7.74% to 7.99% and the UK BTL SVR will increasing from 8.74% to 8.99%.
The bank has moved to pass the full rate rise onto its customers.
For a two-year fixed mortgage, prospective clients are looking at 5.36% for an initial rate before the 8.49% variable rate kicks in.
For a five-year fixed mortgage, future homeowners are currently looking at a 5.34% fixed rate for an LTV of 75% and a variable rate of 8.49%.
The bank gives a mortgage example that shows how much UK households are paying because of rising interest rates.
"A capital and interest mortgage of £202,406 payable over 300 months on a fixed rate of 5.59% for two years and then our variable tracker rate of 3.49% above the Bank of England Base Rate (currently 5.00%), for the remaining term would require 24 monthly payments of £1253.85 and 276 monthly payments of £1605.70."
Put it simply, you ask the bank for £200,000 and end up paying over twice because of interest.
The total amount payable would be £473,380.60 made up of the loan amount plus interest and £0 (product fee), £80 (final repayment charge), £35 (completion fee).
What is the government doing to help?
Prime minister Rishi Sunak has helicoptered chancellor Jeremy Hunt into crisis talks with banks and lenders, agreeing measures for existing borrowers as rates rise.
Hunt has said that lenders had agreed to allow borrowers to extend the term of their mortgages or move to an interest-only plan temporarily.
He added they agreed to implement a 12-month minimum before repossessing homes.
The chancellor told broadcasters that they are most concerned about families who could lose their homes and those whose payments could soar as their fixed-term rates come to an end, according to a report by PA Media.