UK mortgage rates rise slightly as brokers warn of further pain | mortgage interest rate

Data shows the average cost of a new fixed-rate mortgage continues to rise. Brokers warn that borrowers could face further pain if the latest data released this week shows inflation rising again above the Bank of England's 2% target.

Expectations that UK interest rates will remain high for longer following last month's budget measures have led many mortgage lenders to raise the cost of new fixed-rate deals, while the US election result has helped boost volatility.

Mortgage rates have been creeping up recently, with a number of major lenders raising many transaction costs last week, with Barclays increasing some of its fixed rates by as much as 0.56 percentage points.

This led to the typical new fixed interest rate. On Monday, financial data provider Moneyfacts reported that the average price for a new five-year contract was 5.23%. This figure has increased every day since last Monday, when it averaged 5.14%.

In practice, this means that someone taking out a 300,000 mortgage today is paying $17 per month, or $204 per year, more than if they signed up for the same deal a week ago, assuming a 25-year term.

The average new two-year fixed interest rate has also increased slightly and currently stands at 5.51%.

Until a few days ago it was possible to get a five-year fixed rate mortgage for less than 4% through a series of price cuts, but the last deal from a major UK lender has been pulled. Currently, the cheapest products for homebuyers start at around 4.12% to 4.14%.

The Bank of England warned this month that the October budget would increase the cost of living. Some economists are predicting that inflation will again rise above the bank's 2% target level when the latest consumer price index figures are released on Wednesday.

Andrew Montlake, managing director at mortgage broker Coreco, said: Wednesday's inflation curve could bring further pain for borrowers. If the headline CPI is higher than expected, all odds will continue to rise.

Likewise, Craig Fish, director at broker Lodestone Mortgages and Protection, said more lenders were likely to continue to raise interest rates this week, with inflation expected to rise above 2%.

David Hollingworth, associate director at broker L&C Mortgages, said it all hinged on a larger-than-expected rise in inflation. If it meets your expectations, you potentially won't be affected any further.

Hollingworth said the situation is unlikely to lead to a repeat of the very high levels of volatility seen over the past two years, but one of his messages to borrowers is this: When you see a deal you're interested in, you can't afford to sit still.

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