Fixed-rate mortgage costs soar
Updated on 09 July 2008
The cost of a fixed-rate mortgage has soared to an eight-and-a-half year high as lenders continue to hike their rates in the face of higher funding costs, official figures show.
Average interest rates on a two-year fixed rate loan for someone borrowing 75% of their home's value jumped by 0.37% during June to stand at 6.63% - the highest level since February 2000, according to the Bank of England.
The cost of three-year and five-year fixed-rate deals also rose sharply on the back of strong increases in swap rates, upon which the loans are based.
But for the second month running there were no figures quoted for two-year fixed-rate mortgages for people with just a 5% deposit due to the Bank having insufficient data on these deals.
The number of mortgages for people borrowing 95% of their home's value has been declining rapidly since the credit crunch hit. There are now just 80 different mortgages available on a 95% loan to value ratio (LTV), including just 56 fixed-rate deals, down from 1,079 in July last year.
The situation looks set to get worse, with lenders warning in the Bank's recent Credit Conditions Survey that they planned to further tighten their lending criteria during the coming three months.
The recent increase in the cost of fixed-rate mortgages has been driven by a sharp rise in swap rates due to expectations that interest rates could be increased to curb inflation.
The rates peaked at 6.49% during June, although they have since fallen back to 5.95%, leading some lenders to cut their rates slightly.
The data showed that the average cost of a three-year fixed-rate mortgage was 6.37% in June for a new borrower with a 25% deposit, rising to 7.15% for someone with just a 5% one - the highest rate since February 2000 and above many of the traditionally uncompetitive standard variable rate (SVR) deals.
Financial information group Moneyfacts said earlier this week that the average cost of all two-year fixed-rate deals had hit an 11-year high of 7.07%.
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