Mortgage warning as average five-year fixed deal sits above 6%

The average five-year fixed mortgage deal has increased, now sitting at over six percent.

On Tuesday, the average rate for a five-year fixed-rate mortgage hit 6.01 percent, according to Moneyfactscompare.

The average two-year fixed deal is now 6.47 percent.

The Bank of England increased the base rate to five percent. This is the 13th consecutive base rate rise the bank has approved, pushing mortgage rates up further and further.

This puts further pressure on those who are coming off a fixed-term deal and those on a variable rate, as their monthly mortgage repayments are set to soar as rates are much higher than they were years ago.

Sarah Coles, head of personal finance at Hargreaves Lansdown said: “Our finances are on a knife edge, with one in four of us spending more than we’re earning, and one in four mortgage borrowers at risk of missing payments.

“The massive black hole opening in their finances will come from mortgages. Oxford Economics forecasts that the Bank of England base rate is set to peak around 5.75 percent, which would mean there could be more mortgage rate rises in the pipeline.”

What options are available?

Ms Coles continued: “If your remortgage is looming, you’re already on top of expensive short-term borrowing, and have an emergency savings safety net, you could consider overpaying your mortgage. You can usually overpay by up to 10 percent a year within the terms of the deal, but check the small print to make sure you won’t face charges.

“Finding extra cash for this might be a step too far at this stage, but if you get a pay rise or receive any lump sums, you could choose to put them into repaying the mortgage.

She also suggested that people consider extending their loan term.

Lenders have agreed with the Government that borrowers will be able to extend their term for six months without going through the approvals process, and without impacting their credit record.

Ms Coles said it’s worth bearing in mind though that people will be repaying for longer, so although monthly payments will be lower each month, they’ll pay more overall.

She added: “If you end up extending the mortgage term permanently, you need to think about the potential implications. You may need to work later in life than you had planned, and you may miss any window to top up your pension after the mortgage is paid.”

Alternatively, people can switch to interest-only for a period. The Government has arranged to make this easier to do on a temporary basis – for up to six months – without affecting someone’s credit score.

However, this will either mean people need to extend their term when they switch back, or make higher monthly payments, so they need to bear this in mind.

Following the Moneyfacstcompare data, Justin Moy, founder at EHF Mortgages said: “There are still plenty of five year deals below six percent currently available to both residential and buy to let borrowers. However, the trend is worrying, and quick action to secure a new deal is essential.

“With more lenders offering an option up to six months before the expiry of their current deal, it is so important to engage with a mortgage broker to see what is available, and to be ready to make a quick decision.

“We are seeing a number of loyalty deals for Product Transfers much cheaper than average rates. For example, Nationwide BS are offering existing clients 5.14 percent fixed for five years with a £999 Fee (subject to LTV). Use the experience of a mortgage broker to get the right product for you, and to keep watching for any improvements – they will look to switch you to a cheaper deal if one comes along.”

Additionally, Samuel Mather-Holgate at Mather & Murray Financial commented: “Now isn’t the time to fix for longer. Certainty of repayments and the ability to budget could cost you dearly in the long run. Interest rates are inverted over two, five and 10 years with the cheapest of these being 5.89 percent (Halifax), 5.36 percent (Virgin) and 4.94 percent (HSBC) respectively.

“This is a sign that the market thinks rates will come down and The Plank of England, Andrew Bailey, will have to reverse his devastating rate hikes that have seen so much pain applied to homeowners.

“The next inflation print should show a significant fall, with fuel, food and energy bills all on the decline. This could be a significant moment for the mortgage market as lenders race to be top of the best buys table.”