Fixed-rate mortgages 'most expensive in 10 years'

Interest rates on two-year fixed-rate mortgage deals are now at a ten-year high.

At present the average cost of such a deal stands at 6.75 per cent, according to research from personal finance information site MoneyFacts.co.uk.

The rate has continued to increase steadily of late and has been mirrored by a rise in the cost of five-year fixed-rate deals, where the average cost now stands at 6.72 per cent.

Furthermore, with lenders having to pay a higher cost to secure funds on wholesale markets, coupled to the number of weeks of lag time before this cost is passed on to mortgage customers, the situation is likely to get worse before it gets better, argue MoneyFacts.

This comes despite a rise in the popularity of fixed-rate deals, with research from the Council of Mortgage Lenders (CML) showing such products accounted for 59 per cent of the market in April.

While this is up from the 54 per cent recorded in March, and the highest level since December 2007, it is still well below the record of 77 per cent recorded last summer.

"Many borrowers prefer fixed rate deals, particularly in today’s economic climate as they struggle to keep outgoings under control," said Darren Cook, mortgage expert at MoneyFacts.

"However, many are likely to find this increased cost too much to bear. With the average two year variable rate standing at 6.66 per cent, many are finding they have little choice.

"If the current economic climate persists, it is not unreasonable to predict that we may see a situation where a higher proportion of borrowers are on their lender’s standard variable rate (SVR), rather than on an actual mortgage deal," he added.

Indeed, some lenders are offering increasingly competitive SVR deals.

For example, ING Direct is offering an SVR deal at 5.64 per cent – just 0.64 per cent ahead of the Bank of England's base rate of five per cent.

Chris O'Toole