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UK mortgages: average rate on a two-year fixed deal soars to nearly 6%

The average rate on a two-year fixed mortgage has jumped to just under 6%, according to data released on Tuesday, dashing hopes that UK government efforts to calm the financial markets might ease the cost of home loans.

Amid warnings from brokers that 95% mortgages could be the next casualty of the financial uncertainty triggered by Kwasi Kwarteng’s mini-budget, research firm Moneyfacts said the average new two-year fixed rate jumped to 5.97% on Tuesday, having already risen to 5.75% on Monday.

Lenders effectively pulled down the shutters after the market turbulence caused by the 23 September mini-budget, withdrawing 40% of deals last week. Many of the biggest lenders have now re-entered, with Nationwide, NatWest, Barclays, Virgin Money and Skipton returning with new offers.

While there had been hopes in some quarters that the government’s 45p tax U-turn on Monday and the slightly calmer market conditions that have followed might translate into slightly cheaper new mortgage deals, so far the opposite has happened.

Data shared with the Guardian shows that the total number of new 95% mortgage products available has fallen to 129 – less than half the number on sale on the day of the mini-budget, because of fears homeowners could end up in negative equity if house prices were to fall by 10% or more.

The average new five-year fix was priced at 5.75% on Tuesday, up from 5.48% on Monday.

The average two-year fixed rate has surged from an average of 4.74% on 23 September and 2.34% at the start of December last year.

At NatWest, a new two-year fixed rate for those looking to remortgage has leapt from 4.28% to 5.62%. Meanwhile, the new five-year fixes on offer range from 5.85% to 5.99% at Skipton building society.

Chris Sykes, the technical director at the broker Private Finance, said that last week lenders “were withdrawing things just to give themselves a few days to breathe. Most of those on the residential side are back in the market now.”

But he added: “Rates are inflated at the moment.”

Sykes said most rates were in the 5%-plus bracket but added: “I’ve heard rumours of a few lenders coming back in the high fours in the next week or so.”

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