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Best UK mortgage deals of the week

Period terraced houses in a historic residential suburb of York, UK
About 1.6 million existing borrowers have relatively cheap fixed-rate mortgage deals expiring this year. (PaulMaguire via Getty Images)

Mortgage rates edged higher this week as prospective homeowners struggle to find a deal they can afford, with more taking loans well into retirement.

The average rate on a two-year fixed deal this week stood at 5.99%, higher than las week's 4.89%, while rates for a five-year deal came in at 5.46%, above last week's 5.36%, according to figures from Uswitch.

This follows the Bank of England's (BoE) decision to leave UK interest rates on hold at their 16-year high of 5.25% for a sixth consecutive time.

With fewer BoE interest-rate cuts now expected in 2024, most lenders have increased or kept their offers unchanged. The noticeable exception this week was Santander, which cut some of its deals.

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"This week we've generally seen rates rise again ahead of the Bank of England base rate announcement on 20 June. Swap rates began rising again towards the end of last week, with a number of lenders increasing the cost of their two-year fixed rate deals. However, some lenders have made small cuts to their five-year fixed deals, particularly on buy-to-let ranges," Kellie Steed, Uswitch's mortgage expert told Yahoo Finance UK.

"As we approach June's base rate announcement, the feeling among finance experts is that a cut is unlikely this time around. Rising swap rates and the pre-emptive behaviour of lenders also echo this likely outcome. Whether or not mortgage rates will continue to rise as a result is difficult to estimate."

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Meanwhile, young homebuyers are being forced to gamble with their retirement prospects by taking on ultra-long mortgages.

In the last three years, researchers have noted a surge in mortgage terms that see homeowners locked into mortgages running beyond the state pension age. This is particularly rife among those under 30, data from the BoE highlighted.

New data shows that UK lenders approved fewer new mortgages than expected last month.

Mortgage approvals dropped slightly in April, down to 61,100 compared to 61,300 in March, while remortgages also fell from 33,500 to 29,000, the latest figures from the BoE showed.

The amount being borrowed by individuals climbed, however, increasing to £2.4bn compared to £0.5bn in March.

The actual interest rate paid on new mortgages stood at 4.74%, up by one basis point.

Borrowers have long said goodbye to HSBC’s (HSBA.L) 3.99% for a five-year deal. The cheapest deal at the lender’s table is now 4.48% for five years, the same as last week's.

Looking at the two-year options, the lowest rate comes in at 4.86%, with a £999 fee. This is also unchanged from last week.

Both cases assume a 60% loan-to-value (LTV) mortgage, meaning buyers need to have at least 40% for a deposit.

The lender offers 95% LTV deals, meaning you only need to save for a 5% deposit. However, the rates are much higher, with a two-year fix coming in at 6.05% or 5.47% for a five-year fix.

This is because the rate someone can get will be determined by their financial situation and the size of their deposit. The larger the deposit, the lower the LTV, allowing buyers to access better deals because lenders consider them less risky.

Read more: When will interest rates fall and what should you do?

NatWest (NWG.L) has some of the cheapest deals on the market but no offer comes close to its previous 3.94% offer.

The best rates prospective borrowers can now get is an online-only deal offering 4.32% for a five-year deal with a £1,495 fee, assuming a 60% LTV. However, after five years the rate almost doubles to 8.24%.

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It offers 4.42% for green mortgages — this product is available for properties with an energy performance certificate (EPC) rating of A or B — and the fee drops to £995.

For a two-year fix, the cheapest a customer can get is 4.82% online, with a product fee of £1,495, unchanged from last week.

Santander (BNC.L) has also moved away from its under 4% mortgage with a five-year fix coming in at 4.28%, assuming you have a 40% deposit. This is cheaper than last week's 4.38%.

A 60% LTV two-year fixed rate with a £999 purchase fee comes in at 4.80%. A 75% LTV two-year fixed rate with a £999 purchase fee is priced at 4.88%, unchanged from last week.

Santander has made further reductions to selected fixed rates across its purchase, remortgage, buy-to-let and new build ranges. It is also launching a range of new large loan two-year tracker products, up to 75% LTV.

Examples of five-year fixed rates that have been reduced include:

  • 60% LTV five-year fixed rate residential purchase mortgage with £999 product fee is now priced at 4.28%, down from 4.38%.

  • 90% LTV five-year fixed rate residential purchase mortgage with £999 product fee is now priced at 5.10%, down from 5.20%.

Examples of two-year fixed rates that have been reduced include:

  • 85% LTV two-year fixed rate residential purchase mortgage with £999 product fee is now priced at 5.11%, down from 5.18%.

  • 90% LTV two-year fixed rate residential remortgage with £999 product fee is now priced at 6.03%, down from 6.10%.

Barclays (BARC.L) used to have the cheapest five-year deal for prospective homebuyers with a 40% deposit (60% LTV) that came in at 4.17%, with an £899 fee. No more — the lender has hiked the rate for that deal to 4.41%. Last week that same fix came in at 4.34%.

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When it comes to two-year mortgage deals, the lowest you can get is 4.84%, slightly lower than before.

At Nationwide (NBS.L), five-year purchase fixed rates start from 4.59%, with a £999 fee for borrowers with at least a 40% deposit. This is unchanged from last week.

Assuming a £300,000 house where you need to borrow £180,000, this puts monthly payments at £1,009.72 per month.

Equivalent two-year rates start from 4.84%, also unchanged.

Halifax, the UK’s biggest mortgage lender, has kept its deals unchanged from the previous week.

The lender, owned by Lloyds (LLOY.L), offers a two-year fixed rate of 4.78% with a £999 fee for first-time buyers.

The equivalent five-year rate starts at 4.45% (also 60% LTV), also unchanged.

It also offers a 10-year deal with a mortgage rate of 4.93%.

As under 4% mortgage rates are off the market, it makes it harder for prospective homeowners to say they’ve secured a good deal.

The 4.32% deal NatWest offers appears to be one of the cheapest rates available but it requires a 40% deposit, so you will need a hefty amount of cash upfront to secure the deal. Barclays is close, with a 4.34% deal for a five-year fix.

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Given the average UK house price sits at £261,962, a 40% deposit equates to about £105,000.

Borrowers would need to spread their home loans over more than 70 years to afford the same mortgages on offer just two years ago, banks have said.

There is also a new mortgage product promising to help first-time buyers get on the property ladder with just a £5,000 deposit.

Yorkshire Building Society is offering a deal that enables first-time buyers across England, Scotland and Wales with a £5,000 deposit to purchase a property valued at up to £500,000.

It means first-time buyers could get on the ladder with as little as 1% deposit.

Mortgage rates have risen substantially as the BoE increased interest rates to a 16-year high in a bid to tackle inflation.

Until now, the consensus was that interest rates have peaked and that 2024 will see the Bank start to cut rates as inflation eases.

Inflation slowed down less than expected, however, pushing City investors to cut their forecasts for how much the BoE will cut interest rates this year. Traders are now pricing in just one or two rate cuts, compared to expectations of five cuts at the start of 2024.

If the BoE makes any cuts this year, mortgage rates will come down, but not as much as expected for 2024.

Read more: UK inflation falls to 2.3% in April inching closer to Bank of England target

Nicholas Mendes, head of marketing and mortgage technical manager at John Charcol, has said: “It’s important to note that until an official bank rate cut happens, lenders will exhibit mixed attitudes. Those with smaller pipelines may be more proactive in implementing reductions.”

About 1.6 million existing borrowers have relatively cheap fixed-rate deals expiring this year.

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