Homeowners face paying hundreds more a month for their mortgages

HOMEOWNERS face the highest fixed-rate mortgage deals since the late 1990s, according to figures that highlight the impact of the global credit crunch.

The average rate for a two-year loan – the most popular mortgage taken up by homeowners – has hit 6.64 per cent, up from 4.34 per cent two years ago, says the personal finance website Moneyfacts.

Its spokesman, Darren Cook, said borrowers in Scotland could pay even more, as some discount lenders operate only in England and Wales or Northern Ireland. "This figure rises to 6.69 per cent for the average two-year fixed rate available in Scotland." he said.

Moneyfacts' research shows someone coming to the end of a fixed-rate £150,000 mortgage they took out two years ago will see their average repayments rise by £206 a month to £1,026.

Those with a £100,000 mortgage will find average repayments rise by £137 to £684 a month, while homeowners paying back a £250,000 loan will have to fork out an average of £1,710 a month – £343 more than two years ago.

Moneyfacts' figures also show someone taking a typical five-year deal on a £250,000 home loan in 2003 will have to stump up almost £500 more when it comes to renewing it.

It is estimated 1.4 million homeowners will see their fixed-rate deals expire this year. Hopes that lenders were starting to trim their rates were dashed by the news that fixed-rate deals are the highest for ten years.

Back in 1998, the average for fixed-rate mortgages was 6.74 per cent. Standard variable rates were higher more recently, in 2000, when they hit an average of 7.21 per cent.

Life is particularly tough for first-time buyers,

who not only face greater servicing costs but are also now expected to put down a bigger deposit.

There were suggestions this week that there could be light at the end of the tunnel for homeowners after two major mortgage lenders cut their rates.

Nationwide and Abbey reduced the costs of some of their home loans, but MoneyFacts warned the cuts were likely to be a temporary trend after lenders took advantage of a low swap rate – the amount banks are charged for borrowing money.

Mr Cook said: "I think it was a bit too premature for some to interpret that recent cuts as the start of the upturn in the mortgage market.

Lesley Canavan, the general manager of Edinburgh Solicitors' Property Centre Money Management, said: "Stress testing your financial plans to a change in interest rates is a very important action. It allows you to assess what exposure you have and identify what action needs to be taken during the fixed-term deal.

"With house prices in Scotland predicted to rise by between 1 per cent and 2 per cent in the coming year, people will be less able to rely upon price increases and tapping into their equity to help keep their finances in balance."

Sue Shone, of the Chartered Institute of Housing in Scotland, said: "Although there is less evidence house prices are reducing in Scotland, owner occupiers in Scotland are affected by the interest rate hikes as much as their English counterparts."