What to Do If Your Mortgage Rate Jumps

John Stepek (0:02)

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Welcome to Merryn Talks Your Money, the personal finance edition of Merryn Talks Money. In these bonus podcasts, we talk about the best strategies for making the most of your money. I'm John Stepek, Senior Reporter and author of the Money Distilled Newsletter. I'm in this week while Merryn's away.

Earlier this week, it was revealed that the average interest rate on a new five-year fixed mortgage deal had hit 6 percent for the first time in three years. This is not the deal that most people get. Most of us get the best buy mortgages. But on that front, what really caught my eye was that in the past month, the number of sub-five percent fixed rate mortgage deals has collapsed from something like 1,500 to nearly zero. So it's very obvious that rates have gone up significantly. So for today's personal finance discussion, I wanted to get some clarity in why this has happened, the current state of the mortgage rate, the kind of things that are driving rates just now, and what you should do about it, particularly if you're coming up to refinancing mortgage in the next six months or less. Joining me to discuss this is Anthony Emmerson. Anthony is the Director of Mortgage Brokers Trinity Financial, which is a London based firm that specializes in bespoke mortgage advice. He last appeared on the show in May, and before that, he was an expert voice on how to buy a house series. Welcome back to the show, Anthony.

Anthony Emmerson (1:40)

Thank you, John. Pleasure being on again.

John Stepek (1:43)

It's really good to have you back. You last came on in May, and since then, things have got even more exciting for the mortgage market. So remember the last time you were on, you were reminding us that at the start of the year, you could get a two-year fixed rate mortgage for about 3.6 percent. When you came on in May, that had jumped up to 4.7 percent.

Since then, we've had a bit of a brief lull, but one of the most eye-catching statistics from Moneyfax, which is obviously a data provider. In the past month, as everyone's been freaking out about global bond markets again, the number of sub 5 percent fixed rate deals has dropped from around 1,500 to almost zero. I think they said there's exactly nine deals excluding Northern Ireland, which is a slightly different system. So what's going on there? What's happening?

And also, how can we get one of those sub 5 percent deals if we need to?

Anthony Emmerson (2:42)

The mortgage market has changed significantly. We have lenders repricing sometimes once or even possibly twice a week because the Sonya swap rates are changing quite dramatically. We're in this very strange period where a lot of people think that the Bank of England base rate is what controls interest rates, and the Bank of England base rate hasn't moved. So we've been at 3.75 from the beginning of the year through to now. And the oil crisis that kicked off as part of the Iranian war has caused a lot of the sort of swap rate markets and the guilts, which rarely derives fixed rate mortgages in particular to change quite dramatically. And the speed at which they changed caught everyone off guard.

So we have now seen those rates at 3.6 that I mentioned in my last meeting with you now being closer to five mid-fives. The average swap rate, the average two-year fixed rate and the average five-year fixed rate that Moneyfax quotes is taken from a very wide range of products. The average person on the street is still getting considerably better rates than that. So we have, like you say, got around about three or four lenders that are still offering deals at below 5%.

You generally have to be a high earner and be a premier banking customer relationship with them to be able to qualify for them. But things are not quite as bad as that headline-grabbing interest rate that you mentioned.

John Stepek (4:31)

Well, in terms of, actually, I mean, because that's another good point there, because I remember there was a point even after this more chaotic period or the higher interest rate period we've gone into.

But at the start of the year, maybe a year and a half ago, your deposit didn't make as much difference to the interest rate you were offered as perhaps it does now. So I'm wondering if I've just got a 10 percent deposit now and I'm a first time buyer, what are the rates I'm looking at compared to somebody with 40 percent, who's either remortgaging or moving house?