Last updated 05:28, Friday, 27 June 2008

THE average two-year fixed-rate mortgage has broken the 7 per cent barrier, Moneyfacts.co.uk has warned.

Borrowers who want to take out a two-year deal can expect to pay an average of 7.02 per cent, the highest level for more than a decade.

Such deals were typically less than 5 per cent before the credit crunch. This increase pushes the average cost of fixed rates up to the level of the average standard variable loan, which are seen as poor value and are usually used by people who have come to the end of a deal before they remortgage.

Lenders do not usually charge an arrangement fee for borrowers moving onto their SVR so with arrangement fees reaching the £1,000 mark for deals, SVRs are becoming increasingly competitive.

Darren Cook, mortgage expert at Moneyfacts.co.uk, said that the rise is a result of an increase in the rate banks lend money to each other.

“Any extra cost to lenders in arranging the funds on the money market is passed on to customers,” he said. “Lenders are also taking an increased margin on top as they price their products for risk.

“With most lenders not charging a product fee for moving onto their SVR, this is becoming a more viable option. As the rates increase, so does the relative risk. More and more borrowers are likely to find the increased repayment too much to bear.”

“These are worrying times for anyone coming to the end of their mortgage deal.”

The concern over the availability of good fixed-rate deals is shared by Adrian Tod, of Hayward Tod Associates in Carlisle.

He said: “It is worrying that they are a thing of the past and this isn’t good timing as we are coming out of a spring market that has been no different from the winter market.

“People are cautious about taking a fixed-rate deal and are moving to their SVR.”

Mr Tod stressed that the market needs buyers as it is overrun with properties for sale but people need to be able to borrow money.

He said: “It is a confusing time and it is easy to see why young people in particular are choosing not to buy.

“It will take something powerful to get us out of this. There is nothing to give real hope in the short-term and I can’t see any improvements in the next 12 months.

“Banks have to make money and at the moment they are trying to pull money in.”