Fixed mortgage rate at 2008 high after exceeding mini-budget peak
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The average two-year fixed mortgage rate being demanded of new borrowers has climbed above the levels seen last year when financial markets baulked at the government’s mini-budget.
Figures released by analysts MoneyfactsCompare showed the rate had hit 6.6%, hours before mortgage lenders were due to face questions on the tough market from the Treasury Committee of MPs.
The average figure was up from the 6.65% peak seen on 20 October 2022 when lenders withdrew and repriced products as their funding costs leapt in the wake of the growth plans revealed by the administration of then-PM Liz Truss.
The new level means the rate stands at a level last seen in August 2008.
Mortgage rates, which recovered some poise earlier this year after the mini-budget, have gained sharp upwards momentum this summer on expectations the Bank of England has much more work to do to bring down inflation.
The prospects for a pause in its rate hike cycle were damaged earlier in the day when official figures shock a shock rise in wage growth.
Representatives of Lloyds Banking Group, Santander UK, Skipton Building Society, Nationwide and Paragon Banking Group will be asked by the committee of MPs to explain the mortgage market behaviour.
There have been claims that some lenders across the sector have deliberately raised rates to make them uncompetitive because of struggles juggling high volumes of customer enquiries in the evolving market.
HSBC’s UK boss Ian Stuart told Sky News last month that it was working to bolster mortgage capacity after being forced to temporarily make its products unavailable to brokers.
Its rates had been around the best available in the market at the time.
Mr Stuart spoke of a “shock” for 300,000 HSBC borrowers coming off fixed rate deals this year, given they would have faced rates around 1.5% at the time their home loan was taken out.
Ahead of Tuesday morning’s hearing, the MPs said areas of discussion were likely to include levels of mortgage stress, the impact on house prices and the wider housing market, and mortgage affordability and availability.
The committee also wants to raise the ‘mortgage charter’ agreed with the government along with the consequences for buy-to-let mortgages and the rental market.
Housing market sales activity has slowed as bank rate has risen – the latter hitting 5% last month following a shock 0.5 percentage point rise.
The bank’s action is a blunt tool that aims to cool demand in the economy as it grapples challenges from rising prices on several fronts.
