Industry experts have issued a warning that key mortgage rates might climb past the daunting 6% threshold as soon as next week. This potential increase follows a series of rate hikes by over 20 lenders this week, signaling tougher times ahead for those looking to borrow for home purchases.

Several competitive mortgage deals, particularly those under 5%, have recently been withdrawn from the market. This action has come in the wake of signals from the Bank of England suggesting a postponement in the anticipated reduction of rates. Santander, one of the major players in the market, raised its mortgage rates by up to 0.26 percentage points yesterday, marking its second increase in just four days. This trend is not isolated, as other big names like NatWest, Halifax, and Nationwide have also increased their fixed-rate purchase and remortgage deal rates by up to 0.25 percentage points.

Implications for Borrowers

These rate adjustments have set the stage for the average two-year fixed-rate deal to potentially exceed 6% soon, a level not seen since December. Aaron Strutt from Trinity Financial warns that continued rate increases could push two-year deals over the 6% mark in the very near future. However, he also advises that cheaper deals are still available for those who shop around. Presently, the average rate for a two-year fixed mortgage stands at 5.93%, up from 5.76% in January.

For homeowners, even small increases can have significant financial implications. For instance, the increase from 5.76% to 5.93% on a £200,000 mortgage over 25 years equates to a monthly jump from £1,259 to £1,280, costing borrowers an additional £252 annually.

The Wider Impact

This year, approximately 1.6 million borrowers are expected to need new mortgage deals, as their fixed-rate terms expire, says UK Finance. Rachel Springall, a finance expert at Moneyfactscompare, stresses the importance of securing a lower rate deal now. She explains that borrowers transitioning from a fixed-rate mortgage to a standard variable rate could see significant spikes in their repayments.

Market Trends and Predictions

Earlier this year, building societies reduced their mortgage rates in anticipation of a cut in the Bank of England’s base rate during the first half of the year. However, the cost for banks to borrow money, known as the ‘swap rate’, has been climbing, suggesting that potential buyers and current homeowners might have to wait longer for any relief in interest rates. The market now anticipates the first rate cut from the Bank of England might not occur until August, following a series of rate increases since 2021.