Money News

Five-year fixed mortgage rates jump 0.21% in a week

Monday, 22 June 2009 Writes Hazel Cottrell hazel.cottrell@consumerchoices.co.uk

Mortgage lenders have hiked rates on fixed-rate deals and are continuing to penalise those with less than 25% equity in their home.

The average five year fixed mortgage rate jumped 0.21% last week, from 5.61% on Monday to 5.82% by Friday, according to financial information company Moneyfacts (www.moneyfacts.co.uk).

“It is hard to foresee anything other than fixed rates increasing even further.”

For someone with a £150,000 mortgage over 25 years, this rate hike would mean an increase in monthly repayments from £931 to £950 and a total extra cost of £5,700 over the life of the mortgage, if the rate remained the same for the full term.

The average two-year fixed mortgage rate jumped 0.16% in the same period, from 4.74% to 4.90%.

Michelle Slade, analyst at Moneyfacts, attributed the increase to the recent hike in swap rates – the rates at which banks can borrow money.

She said: “After a period of relative calm in the mortgage market, lenders are stumbling over each other to increase fixed-rate mortgages.”

“It is hard to foresee anything other than fixed rates increasing even further,” she added.

Andrew Hagger of financial website Moneynet said that following these increases, he expects to see “a surge in the number of number of homeowners scrambling to lock-in a decent deal whilst they have the chance.”

However, he warned that those looking for a mortgage deal around 85% loan-to-value (LTV) are likely to be penalised with much higher rates, compared to those looking for a 75% LTV deal.

He commented: “With house prices starting to slow you have to question how much of this difference in pricing is risk-related and how much it is nothing more than a mechanism to boost profits at the customers’ expense during these difficult times.”