UK mortgages: average rate on a two-year fixed deal soars to nearly 6%

The average rate on a two-year fixed mortgage has jumped to just under 6%, according to data released on Tuesday, dashing hopes that UK government efforts to calm the financial markets might ease the cost of home loans.

Amid warnings from brokers that 95% mortgages could be the next casualty of the financial uncertainty triggered by Kwasi Kwarteng’s mini-budget, research firm Moneyfacts said the average new two-year fixed rate jumped to 5.97% on Tuesday, having already risen to 5.75% on Monday.

Lenders effectively pulled down the shutters after the market turbulence caused by the 23 September mini-budget, withdrawing 40% of deals last week. Many of the biggest lenders have now re-entered, with Nationwide, NatWest, Barclays, Virgin Money and Skipton returning with new offers.

Related: What is the impact of 45p tax U-turn on markets and mortgages?

While there had been hopes in some quarters that the government’s 45p tax U-turn on Monday and the slightly calmer market conditions that have followed, might translate into slightly cheaper new mortgage deals, so far the opposite has happened.

Data shared with the Guardian shows that the total number of new 95% mortgage products available has fallen to 129 – less than half the number on sale on the day of the mini-budget, because of fears homeowners could end up in negative equity if house prices were to fall by 10% or more.

The average new five-year fix was priced at 5.75% on Tuesday, up from 5.48% on Monday.

The average two-year fix has surged from an average of 4.74% on 23 September, and 2.34% at the start of December last year.

At NatWest, a new two-year fixed rate aimed at those looking to remortgage has leaped from 4.28% to 5.62%. Meanwhile, at Skipton building society, the new five-year fixes on offer range from 5.85% to 5.99%.

Chris Sykes, the technical director at the broker Private Finance, said that last week lenders “were withdrawing things just to give themselves a few days to breathe. Most of those on the residential side are back in the market now.”

But he added: “Rates are inflated at the moment.”

Sykes said most rates were in the 5%-plus bracket, but added: “I’ve heard rumours of a few lenders coming back in the high fours in the next week or so.”

However, in more positive news for borrowers, Moneyfacts also revealed there were almost 100 more new standard mortgage deals on sale on Tuesday than there were on Monday: 2,358 compared with 2,262.

The financial chaos triggered by the mini-budget prompted some analysts to predict last week that house prices could fall by 10%, 15% or even 20%. These predictions may be tempered by expectations in the financial markets that UK interest rates may now not have to climb quite as far or as fast as had been thought. Some said the base rate was expected to peak below 5.5% next year, instead of above 6%.

Despite this, some mortgage brokers are predicting that low-deposit 95% mortgages could disappear, as happened during the first few months of the coronavirus pandemic in 2020.

Mike Staton, the director of Staton Mortgage and Protection Specialists, said: “The risk of homeowners ending up in negative equity right now is a high one, and it’s an uncertainty that many lenders just won’t be willing to gamble on. The easiest way to avoid this risk is the removal of the 95% loan-to-value (LTV) mortgage. Having talked with several BDMs [business development managers] from different building societies over the past week or so, they think the withdrawal of 95% products is next. This happened during the pandemic, so this is not as groundbreaking as we think.”

Graham Cox, the founder of the broker firm Self Employed Mortgage Hub, said that in his opinion, without some sort of government intervention, “I think it’s a nailed-on certainty that lenders will withdraw their 95% LTV mortgage products, for fear of borrowers falling into negative equity.”

New data from Moneyfacts shows that the number of 95% mortgages has been falling since the mini-budget, and stood at 129 on Tuesday. That compares with 130 on Monday and 283 on 23 September.