A typical two-year fixed mortgage offer now carries an interest rate of more than 6% for the first time since December.
Mortgage lenders have been withdrawing and reassessing deals at a rapid pace in recent weeks, creating concern for those seeking new deals.
Mortgage interest rates spiked after last fall’s mini-budget before easing slightly.
Now, concerns about the implications of rising prices have sent interest rates on loans rising again.
On Monday, the average rate on a two-year fixed-rate mortgage stood at 6.01, according to the Moneyfacts financial information service.
Although the post-mini-budget peak was 6.65% in October last year, the rate dipped below 6% in early December before falling further, but has risen sharply again recently.
A typical five-year fixed rate is now at 5.67% compared to last year’s high of 6.51%.
Recent data on wages and price increases means that markets anticipate inflation and interest rates to remain higher in the UK for longer than expected, which has been reflected in the cost of financing mortgages. .
That’s been reflected in the rates lenders charge new and remortgaging borrowers. Lenders have been trading and raising rates in the short term, while some have been inundated by demand and thus forced to withdraw or raise rates again.
More than 400,000 people will see their existing fixed offers end between July and September, a comparatively high number. Many face the prospect of having to budget for monthly payments that are hundreds of pounds more expensive than they are used to.
The base rate, set by the Bank of England’s Monetary Policy Committee and currently at 4.5%, will be reviewed next week and is expected to rise for the 13th consecutive time. The latest official data on how fast prices are rising will be released the day before.
But at the weekend, a former deputy governor of the Bank, Sir Howard Davies, argued that it should “wait and see” to see the full effect of the rate rises made so far.
“We have a mortgage market where most people are on a fixed rate – when you put up interest rates you only have an impact on the small number of people paying the variable rate and on the people whose fixed rate happens to come up for renewal,” he told the BBC.
“So it’s arguable the interest rate rises we’ve already seen have not yet fed fully through into the impact onto consumer spending.”
On Sunday, cabinet minister Michael Gove told the BBC that help for people struggling with their mortgages was being kept “under review”, although any financial assistance would be a decision for the Treasury.
He also warned that using public money to “deal with particular crises” inevitably added to public debt and risked driving up interest rates further.
The BBC understands that the Treasury has no current plans to give mortgage relief.
On Saturday, a report by the Resolution Foundation found the average cost of remortgaging next year would increase by £2,900.
The think tank also said it did not expect the average two-year mortgage deal to fall below 4.5% until the end of 2027, leaving the UK in the depths of a “mortgage crunch”.
The latest figures from property website Rightmove found that the average asking price for a property coming onto the market has dipped for the first time this year.
The average price fell by £82 in June to £372,812, Rightmove said, noting that mortgage rate rises and high inflation were affecting households’ finances.
Inflation – the rate at which prices rise – is remaining stubbornly high in the UK. The annual inflation rate was 8.7% in April, still well above the Bank’s 2% target.
By raising interest rates, the Bank expects people to have less money to spend and buy fewer things, which should help stop prices rising as quickly.
However, it also makes it harder for firms to borrow money and expand.