New figures recently released have revealed that the cost of two-year fixed-rate mortgages has reached a 10-year high. The average rate of the popular home loan is now above seven per cent whereas it was less than five per cent before the credit crisis struck.

The increases have come despite the Bank of England cutting or freezing the base rate during 2008. A £50 billion government package to boost the mortgage market and bring down home loan rates also appears to be having little effect.

Mortgage lenders have been raising their rates because of concerns that the BOE may start increasing the base rate later in the year to keep control of inflation, which is at a 16-year high.

According to Moneyfacts.co.uk, a financial website, the average rate for a two-year fixed-rate deal has increased to 7.02 per cent from 6.75 per cent at the beginning of last week and from 6.61 per cent at the start of the year.

The increase since the beginning of the year will cost someone taking out a £100,000 mortgage an extra £410 a year increasing to more than £2,000 annually for a £500,000 loan. Most people taking out fixed-rate mortgages will also have to pay large arrangement fees.

The latest increases mean that banks now typically charge the same for their two-year fixed-rate deals as for their standard loans. Standard variable rate loans were previously far more expensive than short-term deals but there is now little incentive for borrowers to switch.

More than one million borrowers are due to come off cheap deals taken out two years or more ago and will now face a significant “payment shock”.

This entry was posted on Thursday, June 26th, 2008 at 2:45 am and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.