Fixed-rates loans at eight-year high for new borrowers

Latest figures from the Bank of England show that fixed-rate mortgages taken out by new customers are at their most expensive for eight years.

Rates on the ever popular two-year fix have risen to an average of 6.64%, compared to an average rate of 4.34% in mid-2006.

For those with substantial equity in their homes the picture is little better with interest rates on a two-year fixed home loan averaging at 6.27%.

According to Bank of England data, longer term fixed-rate loans are also becoming more expensive, with the rate on an average five-year deal rising to 6.11% in May, compared with 5.85% in April.

Given that the Bank of England cut the base rate to 5% in April, the figures confirm that base rate cuts have little impact on fixed-rate mortgage costs at this time.

As a result, more borrowers are now opting for tracker loans.

The rates that govern fixed-rate funding relate to market swap rates and these have been spiralling in recent weeks, partly because of fears that rising inflation will force the Bank of England to raise the base rate.

The two-year swap rate is the interest rate charged to lenders who are borrowing money over a two-year period.

It will rise above the Bank of England’s base rate when the lenders expect the base rate to increase during the period of the loan.

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