Average two-year mortgage rates at 15-year high as lenders are quizzed by MPs

The typical two-year fixed-rate residential mortgage on the market reached 6.66%, up from 6.63% on Monday, Moneyfactscompare.co.uk said.

The last time two-year rates were higher was in August 2008.

On October 20 2022, the average two-year fixed-rate mortgage hit a peak of 6.65%, amid the market volatility which followed September’s mini-budget.

Moneyfacts also said the average shelf-life of a mortgage is just 12 days – the lowest since its records started in November 2011.

Previous low points were reached in January 2023 and October 2022, when mortgages remained on the market for 15 days on average.

The Chancellor took questions from consumer expert Martin Lewis on his ITV show on Tuesday, as he defended the Prime Minister’s previous use of the phrase “hold our nerve” amid rising interest rates.

He said: “I think the Prime Minister’s comments was taken out of context. It was never advice for an individual person making a decision about their mortgage. He was really saying what our approach as a government is… and to say we shouldn’t be defected from the course of action that we know will work.”

Asked if more practical help could be coming, he pointed to ongoing work by the Financial Conduct Authority looking into how rising interest rates can be passed onto savers.

He added: “If you have other ideas, you should tell me but we are not by any means saying that this is the end of the story.”

Bank and building society bosses appeared before the Treasury Committee earlier on Tuesday, to explain what they are doing to support customers.

Henry Jordan, home commercial director at Nationwide Building Society, told the Treasury Committee: “There is a significant increase in rates for customers maturing off their original product.

“As context, for our mortgage book, it’s around a £235-per-month increase.”

He said this is an increase of around a third of their original payment.

Mr Jordan told the committee that the building society has seen “no material increase in arrears yet” as interest rates have risen.

Andrew Asaam, homes director at Lloyds Banking Group, told the MPs: “As we look at the impact on arrears and forbearance and repossessions, very similar to Henry, we saw an uptick but arrears remain very low in a historical context and still below what we’d have seen pre-Covid.”

Bradley Fordham, mortgage director at Santander UK, told the committee the bank has seen a “small tick-up in arrears, still 20% below pre-pandemic, 70% below 2009 post-financial crisis, so relatively low levels”.

He said mortgage customers coming off deals and going on to new ones are seeing payment increases of “over £200 per month”.

Mr Hunt recently held a summit with mortgage lenders and a new mortgage charter was agreed to support those who are struggling.

Lenders will be able to offer borrowers a switch to interest-only payments for six months, and an extension to their mortgage term to reduce their monthly payments, with the option to switch back within six months.

Both options can now be offered without an affordability check.

Mr Fordham told the committee: “Customers who have a mortgage product that’s expiring… over the last few months, less than 4% of those customers are inquiring about a mortgage charter-type solution – obviously pre-mortgage charter – but a term extension, or a conversion of their mortgage to help affordability.

“So we would expect the numbers to be lower than the pandemic in terms of the payment holiday situation.”

He said the bank will encourage customers to contact it to go through their options, adding: “If a customer can afford the increased payments, longer term it’s better for them because they will pay less interest of course.”

Asked what is the point of the mortgage charter, Mr Asaam said: “I think it provides consumers and customers with clarity around what’s out there – and consistency.”

Around 2.4 million fixed-rate mortgages are due to finish between now and the end of 2024, according to figures from trade association UK Finance.

Asked by the committee what lenders can do above and beyond the charter and what is already being done to minimise the risks of repossessions or distress, Mr Asaam told MPs that customers are allowed to select new products six months before their existing mortgage maturity, adding: “That allows them to plan.”

He said Lloyds has also been phoning potentially high-risk customers.

Variable-rate customers are also being told if they could make savings by moving to a different product, he said.

There is also a suite of tailored options for customers in financial difficulties, he added.

Mr Asaam said house price falls could leave some mortgage holders in negative equity, with first-time buyers most exposed.

But the Commons Treasury Committee was told that due to relatively low loan-to-value rates across the market, there was less risk of widespread negative equity than in previous financial crises.

Mr Jordan said house prices had already fallen by around 4% from the peak last year, with further drops expected to around a 6.5% decline.

But even that would not significantly increase the amount of homeowners with loans exceeding the value of their property.

He said this was because only around 2.5% of homeowners had a loan-to-value rate higher than 90%, partly because of the boom in house prices during the pandemic, “so there’s headroom”.

Mortgage rates had started to settle down following the jump last autumn, but they have been increasing again amid expectations that interest rates will be higher for longer as the Bank of England tries to tackle stubbornly high inflation.

The Bank of England uses base rate rises as a tool to try to subdue inflation and the base rate is currently 5%, following 13 increases in a row.

In further signs of the pressures on inflation, new figures show that wages have increased at a record rate.

The Office for National Statistics (ONS) revealed on Tuesday that average regular pay, not including bonuses, was 7.3% higher in the three months to May compared with the same period last year.

A new consumer duty, which takes effect at the end of July, will also compel lenders to offer support that meets a customer’s individual needs, communicate clearly with people about their options, and provide decent customer service.

Rishi Sunak has admitted inflation is “proving to be more persistent than people thought” but said this does not mean his course of action is “wrong”.

Speaking to broadcasters in Vilnius, Lithuania, where he is attending a Nato summit, the Prime Minister acknowledged “things are difficult for many families across the country” amid a rise in interest rates.

A source close to former prime minister Liz Truss said: “It was always clear interest rates were going to have to be raised from the artificially low levels of recent years.