The last time the rate was above 6% was 14 years ago, at the height of the worst global economic crisis since the Great Depression.ion. Then it was 6.31%.
The mortgage market has been in turmoil since Chancellor Kwasi Kwarteng’s ‘mini budget’ sparked fears of much higher than expected inflation and much larger interest rate hikes from the Bank of England.
On September 23, when Mr Kwarteng made his statement, the average two-year fixed rate was 4.7% – it has since risen by 1.37%.
This means a buyer with a typical mortgage of £200,000 will have to pay an extra £228 a month compared to two weeks ago.
The new average rate will cost them an additional £5,480 in interest over a two-year deal.
In December last year, the average two-year interest rate was 2.34%, according to figures from financial data provider Moneyfacts.
Based on someone with a £200,000 mortgage paid off over 25 years, their average monthly payments at that rate would have been £881.20.
But based on current average rates, they could end up paying £1,297.17 a month, a difference of almost £416 or almost £5,000 a year. Lib Dem Treasury spokeswoman Sarah Olney said: ‘This is not the kind of growth Britons want.
Mortgage choice is gradually improving after many lenders secured deals last week, with 2,371 products available yesterday, down from 2,358 on Tuesday.
Lenders withdrew a record number of home loans in the wake of the “mini-budget” as huge market volatility made deals impossible to value. Between September 23 and October 1, the number of available mortgage transactions fell by 43%, a loss of 1,703 products.
Banks and building societies are now slowly restarting their transactions but with higher interest rates.
The average five-year fixed rate was 5.97% yesterday, down from 4.7% before the Chancellor’s statement.
And a warning came from Jonathan Samuels, managing director of Octane Capital.
He said the threat of further interest rate hikes “prevails”, adding: “Those considering a purchase are best advised to do so now.”
Mr Kwarteng is due to meet leaders of major UK banks and mortgage lenders today.
The Bank of England’s interest rate stands at 2.25%, but is expected to reach 6% next year.