The cost of fixed-rate mortgages rose to its highest level for ten months as more borrowers took out loans to buy new homes, according to figures published yesterday.
The Bank of England said that the average five-year, fixed-rate mortgage had risen from 5.54 per cent to 5.7 per cent between June and July, the highest level since October 2008, when the base rate was 4.5 per cent, compared with 0.5 per cent now.
Meanwhile, the number of homeowners taking out a mortgage to buy a home rose by 23 per cent to 45,000 in June, the highest for a year, according to the Council of Mortgage Lenders, after a rise in demand from new homebuyers.
Economists said that mortgage rates would continue to rise for the rest of the year, stifling the market at a time when demand for fixed-rate mortgages was increasing. Rate rises are a result of lenders passing on the higher cost of funding but also reflect bigger margins and a reluctance by banks to take on new business.
Paragon Mortgages, a lender, said that a record seven in ten buyers had applied for fixed rates in the three months to June as borrowers looked to capitalise on an historically low base rate. However, those opting for trackers, which follow the base rate, fared better: the average rate of these deals stayed the same at 3.81 per cent.
Separate government figures yesterday from the Department for Communities and Local Government showed that high demand relative to low supply had contributed to a 1.6 per cent rise in house prices in June to £191,423, bringing the annual fall from June to June to 10.7 per cent in England. The average price paid by first-time buyers rose by 2 per cent between May and June to £140,222.
Knight Frank, an estate agency focusing on the top end of the market, said that there were so few properties coming on to the market that some of its offices might run out of homes for sale by the end of the month. It said that the worst stock shortages were in parts of the country where there were few forced sellers of prime properties, such as Hereford. Some vendors were waiting until September before putting their properties on to the market.
Sandy Hutchens likes fixed-rate mortgages and would like to see them locked in at a reasonable rates.