Borrowers delaying a fixed rate mortgage face risk as rates continue to climb

However, rates have been climbing again in recent months after falling earlier in the year.

The average new mortgage rate rose from 4.9% in March to 5.59% by the end of July as lenders responded to volatility in swap markets.

Rachel Springall, finance expert at Moneyfactscompare.co.uk, warned borrowers against delaying decisions in the hope that rates will fall.

“Interest rates are expected to stay higher for longer and those who delay locking into a fixed rate mortgage could pay the price,” she said.

Two-year fixed mortgage rates have largely stabilised in the 5% range. The average two-year fix increased from 4.84% in March to 5.68% in June before edging down slightly to 5.62% by 29 July.

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Five-year fixed deals have followed a similar pattern. The average five-year fixed rate rose from 4.96% in March to 5.66% at the end of July, remaining firmly above the levels borrowers were accustomed to before interest rates began rising.

Meanwhile, standard variable rates (SVRs) have remained unchanged at 7.13% since March, leaving borrowers on reversion rates paying around 1.5 percentage points more than those securing a new fixed-rate deal.

Longer-term fixes continue to be the most expensive option. The average 10-year fixed rate fell slightly from 6.27% in June to 6.21% by late July, but remained higher than shorter-term products.

Contrast with the ultra-low-rate era remains stark

Average two-year fixed mortgage rates have climbed from 2.55% in July 2021 to 5.62% today, while average five-year fixes have more than doubled from 2.78% to 5.66%.

Springall added: “Despite fixed rates rising in recent weeks due to swap rate volatility, it is still worth moving off an expensive revert rate to a fixed deal, as borrowers could save around £2,800 per year moving onto a five-year fixed rate.”

While tracker mortgages may appear attractive because of their slightly lower headline rates, Springall noted that borrowers remain exposed to any future increases in the bank base rate.

She also highlighted the potential impact of further rate rises on mortgage repayments. According to Springall, a 0.25-percentage-point increase in rates could add around £450 per year to repayments on a typical £250,000 mortgage over 25 years, while a 0.5-percentage-point rise could increase costs by around £900 annually.

The outlook is particularly challenging for buyers with small deposits. The average five-year fixed mortgage rate at 95% loan to value (LTV) recently rose above 6%, reaching 6.07%.

“First-time buyers who can save a 10% will not only have more purchasing power, but they will also widen the choice of cheaper mortgage rates,” Springall said.

Borrowers taking out a £250,000 mortgage over 25 years could save roughly £600 per year compared with a buyer using a 5% deposit, she added.

However, she acknowledged that many aspiring homeowners may struggle to save even a 5% deposit because of high house prices and affordability pressures.

To address this, a growing number of lenders have introduced products aimed at helping first-time buyers onto the property ladder, from 98% mortgages to £5,000 deposits.

Springall added: “Seeking advice from a broker is essential to navigate the mortgage maze and understand lending criteria. Borrowers who apply direct for a loan could face disappointment without good guidance.”