The number of deals available has also fallen but it is still worth remortgaging if you are coming to the end of your deal.
Key takeaways
Mortgage rates rose for the 11th month in a row in September and the level of choice fell as the market adjusts to higher interest rates
The average amount of time a mortgage is available before lenders withdraw it has increased from a record low of 17 days in August to 28 days today
With the Bank of England base rate expected to rise to 3% or 4%, homeowners coming to the end of a deal should remortgage now
Mortgage rates rose for the 11th month in a row in September and the level of choice fell as the market adjusts to higher interest rates.
The average cost of a two-year fixed rate mortgage reached a nine-and-a-half-year high of 4.24% in September, an increase of 1.9% since December last year.
The typical cost of a five-year fixed rate mortgage also rose to 4.33%, 1.69% more than in December and the highest level since November 2012, according to financial information group Moneyfacts.
Meanwhile, lenders have withdrawn more than 500 mortgage products during the past month, leaving 3,890 different deals for borrowers to choose from, the lowest level since April 2021 and down from more than 5,300 deals at the beginning of December.
The number of different mortgages available fell for all types of borrower, ranging from first-time buyers to those with large equity stakes in their property.
But there was some good news for potential borrowers, with the average amount of time a mortgage is available for before lenders withdraw it increasing from a record low of 17 days in August to 28 days this month.
Why is this happening?
The rise in mortgage rates reflects increases to the Bank of England base rate.
The Bank’s Monetary Policy Committee has hiked the base rate by 1.65% since December last year, as it tries to control inflation.
These increases make it more expensive for lenders to borrow money on the money markets, which is reflected in higher mortgage rates for customers.
Should I still remortgage?
Despite the increase in mortgage rates seen since December last year, it is still definitely worth remortgaging if you are coming to the end of your current deal.
The average standard variable rate – the rate that lenders put you on if you do not remortgage – is currently 5.4%, the highest level since December 2008.
The rate has now increased for nine months in a row, rising by 0.23% in August, the biggest monthly jump since Moneyfacts first started keeping records in December 2007.
And it is expected to continue rising, as standard variable rates typically move up and down in line with changes to the base rate.
Although interest on the average two-year fixed rate mortgage has now reached 4.24%, homeowners with a £200,000 mortgage could still save £136 a month by remortgaging, rather than sitting on their lender’s standard variable rate, even before future interest rate rises are factored in.
Will interest rates rise further?
The short answer is yes. But it is more difficult to predict exactly how much further they will increase by.
The Bank of England is currently increasing interest rates in a bid to bring down inflation.
Economists had previously predicted that inflation would not peak until early 2023, with some predicting it could get as high as 22%.
But following Prime Minister Liz Truss’ energy price freeze announcement, inflation is now expected to peak earlier in November this year and at a lower level of around 11%.
That said, by putting more money back into consumers’ pockets, economists think the energy price freeze will lead to inflation remaining elevated for longer.
As a result, interest rates are also likely to have to remain higher for longer.
Overall, economists are predicting the Bank of England will have to increase the base rate to between 3% and 4% by the middle of next year to get inflation back under control.
That would mean interest rates increasing by between 1.25% and 2.25% from their current level.