June 11, 2008 | posted by Pam Atherton in Banking, House prices, Mortgages, UK economy |

Fixed rate mortgages have become more expensive than at any time in the last eight years, according to data published by the Bank of England.

Fears that the Bank of England will have to crack down on rapidly rising inflation with a series of interest rate rises before the end of this year, is driving up swap rates  which determine the cost of funding fixed rate mortgages.

The average rate that lenders are quoting for two-year fixed rate mortgages for borrowers with a 25 per cent deposit, rose from 6.06 per cent in April to 6.27 per cent in May - the highest since September 2000, when base rate was 6 per cent, 1 per cent higher than today.

Average three year fixed rates have jumped from 5.67 in April to 6.13 per cent in May, while five year  fixes have risen similarly from 5.85 per cent to 6.11 per cent. The data assume a 25 per cent deposit and exclude higher loan-to-value deals as many of these are no longer available.

Fixed rate mortages were the most popular type of mortgage taken during 2007, with the majority of fixed deals taken for a two year period, but more recently borrowers are tending towards variable rate products such as trackers.

Rising borrowing costs are likely to put further downward pressure on the housing market, where the number of house sales hit its lowest level since 1978, with only 17.4 transactions per estate agent in the three months to the end of May.

But although house prices fell on average by 1 per cent in the three months in April, they are still 44 per cent higher than five years ago, according to a house price survey by the Department of Communities and Local Government, based on sale completions.

A spokesman for the DCLG said: “The current issue affecting the market is fundamentally about the supply of credit - a very different situation to the early 1990s which was about high interest rates and unemployment.”