Fixed mortgage rates now higher than those under Liz Truss’s government

The average two-year fixed mortgage rate now being demanded of borrowers has climbed above the levels seen last year when financial markets baulked at the government’s mini-budget.

Figures released by analysts MoneyfactsCompare showed the rate had hit 6.66%, just before mortgage lenders faced questions on the tough market from MPs.

Bosses told the Treasury committee while they were yet to see any material increase in the number of customers in arrears, those taking out a new loan deal were facing higher payments above £200 per month typically.

The average two-year rate figure was up from the 6.65% peak seen on 20 October 2022 when lenders withdrew and repriced products as their funding costs leapt in the wake of the growth plans revealed by the administration of then-PM Liz Truss.

The new level means the rate stands at a level last seen in August 2008.

Mortgage rates, which recovered some poise earlier this year after the mini-budget, have gained sharp upwards momentum this summer on expectations the Bank of England has much more work to do to bring down inflation.

The prospects for a pause in its rate hike cycle were damaged earlier in the day when official figures showed a shock rise in wage growth.

Representatives of Lloyds Banking Group, Santander UK, Skipton Building Society, Nationwide and Paragon Banking Group were asked by the MPs’ committee to explain the help available to customers as pressure on budgets mounts.

Andrew Asaam, homes director for Lloyds, said the industry’s new mortgage charter, agreed with the chancellor, brought “clarity” and “consistency” for consumers.

The deal means struggling borrowers can switch to interest-only payments for six months and extend their mortgage term to reduce monthly payments.

Mortgage lenders are also prevented from evicting people from their homes less than a year from their first missed payment.

There have been claims that some market participants have deliberately raised rates to make them uncompetitive because of struggles juggling high volumes of customer enquiries in the evolving market.

HSBC’s UK boss Ian Stuart told Sky News last month that it was working to bolster mortgage capacity after being forced to temporarily make its products unavailable to brokers.

Its rates had been around the best available in the market at the time.

Mr Stuart spoke of a “shock” for 300,000 HSBC borrowers coming off fixed rate deals this year, given they would have faced rates around 1.5% at the time their home loan was taken out.