7% high for two-year fixed-rate mortgages

25 June 2008

Interest rates soar and home loans are hard to find

According to the financial information service Moneyfacts, the interest rate on an average two-year fixed-rate mortgage deal is now above 7%.

It is the highest rate seen by these deals since February 1997.

The increase is a result of the credit crunch and the shortage of mortgage funds where banks have been struggling to raise the money to lend to borrowers in the form of home loans. This is because the cost at which banks lend to each other (Libor or ‘Swap’ rates) has increased.

This shortage of funds has caused lenders to ask for bigger deposits and the number of fixed-rate mortgages which require just a 5% deposit has dramatically dropped to only 12.

Moneyfacts said the increase in Swap rates is being passed onto borrowers by lenders.

Darren Cook at Moneyfacts said: “Lenders are also taking an increased margin on top as they price their products for risk.

“The average standard variable rate (SVR) today stands at 7.02%.

“With most lenders not charging a product fee for moving onto their SVR, this is becoming a more viable option for many at the moment,” he added.

Over the past couple of years, two-year fixed mortgage deals have been among the most popular among buyers, especially those buying for the first time.

However, these types of short-term deals seem to be quickly disappearing.

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