Borrowers urged to fix as lenders raise mortgage costs

Borrowers considering tying into a fixed-rate mortgage deal have been advised to act soon after home loan costs reached their highest level in six months.

The interest charge on the average two-year fixed-rate mortgage is now 4.49 per cent, the most expensive since August last year. Five-year fixed-rate mortgage costs are also at a six month high, at an average of 5.45 per cent. The increase in the cost of a five-year mortgage signals the end of a period of competition in that market, with the Bank of England reporting last November that the average five-year rate had fallen to the lowest level for eight years.

The turnaround is due to a sharp rise in the funding costs facing lenders. The swap rate on which fixed-rate mortgage prices are based has soared from 1.35 per cent at the end of November to 1.98 per cent at the start of this week, according to Moneyfacts.

Michelle Slade, of Moneyfacts., said most lenders have increased rates since the start of this year, with some mortgage deals up by more than half a percentage point.

"Borrowers who have delayed the decision to commit to a new deal will now find themselves having to pay higher monthly payments. On a mortgage of 150,000, a 0.5 per cent increase would add 42 per month to repayments," said Slade.

With no sign of swap rates falling, the likelihood is that mortgage costs will rise further, Slade added. "Any rise in base rate would push mortgage rates higher, so borrowers looking to fix their repayments should act sooner rather than later," she said.

Andrew Hagger, head of communications at Moneynet.co.uk, said a surge in swap rates in the last seven days alone could add a further 0.25 per cent on fixed rates by the end of February.

"There is usually a time lag of a couple of weeks before swap rate movements are reflected in customer rates," he said. "If you're sitting on a standard variable rate mortgage, now is the time to take action if you want to bag a competitive fixed-rate deal."