A string of Bank of England base rate increases over the last 12 months has pushed up borrowing costs
High numbers of home-owners are set to refinance their mortgages in the coming year.
But some may find themselves paying tens of thousands of pounds more over the course of their new home loan than they would have done if they had taken out a deal just a year ago.
A string of Bank of England base rate increases over the last 12 months has pushed up borrowing costs – and mortgage rates jumped in the wake of the mini-budget, with many deals also being withdrawn.
While borrowers on variable mortgage rates have felt the immediate impacts of base rate rises, those on fixed-rate mortgages have been cushioned from this – until they need to take out a new deal.
Around four-fifths (78%) of outstanding mortgages are fixed rates.
Average two- and five-year fixed-rate mortgages breached 6% in the autumn of 2022, but lenders have slowly been making reductions to their mortgage pricing since then.
Base rate rises have pushed up borrowing costs immediately for some borrowers on variable mortgage rates.
Many borrowers are on fixed rates, which have cushioned them from the immediate impacts of the higher interest rate environment. But they could get a shock when they come to take out a new deal.
Trade association UK Finance has said around 1.8 million fixed-rate mortgage deals are scheduled to end in 2023.
The average two-year fixed-rate on December 1 last year was 2.34%, but by December 9 this year it was 5.84%.
The average five-year fixed-rate on the market on December 1 2021 was 2.64%. On December 9 2022 it was 5.67%.
The rates borrowers are offered by lenders will depend on individual circumstances, including how much equity they have in their home.
Mortgage rates also vary day by day and are influenced by several factors.
Moneyfacts’ figures show that, in the days after the most recent Bank of England base rate increase, on December 15, the average two-year fixed-rate mortgage edged down slightly, from 5.83% to 5.82%.
The average five-year fixed-rate mortgage remained unchanged, at 5.63%, between December 15 and December 19.
Rachel Springall, a finance expert at Moneyfacts.co.uk, said lenders are slowly making reductions to their fixed pricing.
However, those with limited deposits might sit on the fence a little longer to buy their first home as the cost of living takes its toll, she said.
Borrowers might prefer to lock into a longer-term fixed-rate mortgage during 2023 due to the prevalent interest rate uncertainties over recent months, but this will depend on their circumstances, she said.
As the mortgage market remains volatile, its vital borrowers seek independent advice to consider the deals on offer to them, or whether they need to be a little patient in hopes rates will fall further, she said.