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Mortgage costs have hit the highest level for 15 years after the rate on a two-year fixed deal surpassed the peak in the aftermath of the mini-budget.

The average rate on such a deal is now 6.66% - a level not seen since August 2008 and the financial crisis.

Mortgage costs have been soaring recently as lenders grapple with inflation and uncertainty over interest rates set by the Bank of England.

Lenders have been questioned by MPs about the impact on customers.

Bank and building society bosses, including representatives from Lloyds and Nationwide, were in front of the Treasury Select Committee.

The hearing covered mortgage stress faced by borrowers, lenders' response to people falling behind on repayments and the wider impact on the UK housing market.

Mortgage providers said people fixing deals at rates now would typically face an increase of about £350 a month in their repayments, but there remained relatively low numbers of people falling behind partly because unemployment remains low.

The committee examined how mortgage-holders are trying to cope, with some people overpaying on current deals and considering extending their term.
 

UK house prices fell at their fastest annual pace for nearly 14 years in May, the Nationwide has said.

The building society said prices in the year to May dropped by 3.4%, the biggest decline since July 2009.

It also warned that more rises in mortgage interest rates could hit the housing market.

Mortgage rates have risen recently on expectations that the Bank of England will have to lift interest rates again because of stubbornly high inflation.

As a result, the Nationwide said "headwinds to the housing market look set to strengthen in the near term".

House prices edged down by 0.1% in May itself, the Nationwide said, and the average property price now stands at £260,736.

Average prices are still 4% below their August 2022 peak, it added.

A drop in house prices would generally be welcomed by first-time buyers, who have watched property values continue to climb in recent years, even during the pandemic.

However, rising interest rates means that mortgage costs are now higher than many people looking to get on the housing ladder might have planned for.

New figures from the Bank of England showed the amount of mortgage debt borrowed was at its lowest level on record in April, excluding the period since the beginning of the Covid pandemic. Overall, borrowers repaid £1.4bn more on their mortgages than banks lent out.

The Bank also said net mortgage approvals for house purchases fell to 48,700 from 51,500 in March.

UK house prices experienced their biggest annual fall in 12 years, according to Halifax, the latest sign that soaring interest rates on mortgages is bringing a halt to the housing boom.

The average price of a UK home tumbled 2.6% year on year last month, the largest annual decrease the lender has reported since June 2011, a significant acceleration from the 1.1% decline record in May.

Up until May, Halifax – which said that the average house price fell by 0.1% in June, the third consecutive monthly decline – had not reported a year-on-year fall in UK house prices since December 2012. The average price of a home in the UK is now £285,932, £8,000 lower than the peak last August according to the lender.

“The housing market remains sensitive to volatility in borrowing costs,” said Kim Kinnaird, the director of Halifax Mortgages. “Concerns about persistent inflation have led to a significant increase in the cost of funding. The resulting squeeze on affordability will inevitably act as a brake on demand, as buyers consider what they can realistically afford to offer.

“How deep or persistent the downturn in house prices will be remains hard to predict. With markets now forecasting a peak in Bank Rate of over 6%, the likelihood is that mortgage rates will remain higher for longer, and the squeeze on household finances will continue to put downward pressure on house prices over the coming year.”