Mortgage rates are ticking upwards – first-time buyers should think about taking the plunge
Every Friday, we take an overview of the mortgage market with industry experts and round up the best rates with Moneyfactscompare.co.uk.
Mortgage rates have started ticking upwards this week, taking average five-year fixed deals back above 5%.
Despite the Bank’s base rate falling from 4.25% to 4% this month, swap rates moved in the opposite direction, with some hitting the highest level for 30 days.
Swap rates determine how much lenders are charged to borrow money to lend to customers.
“The Bank of England’s Monetary Policy Committee meet eight times a year to set the base rate, however, an estimated half a million changes to the swap rate take place over the same period.” Adam French, head of news at Moneyfacts, said.
“This market is valued at £350trn, and rates can change every second – sometimes multiple times per second. And it is this market that heavily influences how banks and building societies price their fixed-rate mortgage products.”
Part of the reason they’ve jumped recently is because forecasters now expect inflation to rise to 4% next month.
Is the rate-cutting tide changing?
A handful of lenders increased their rates. NatWest pushed deals up by as much as 0.2% and Santander by up to 0.11%.
Similar moves were made by Nottingham Building Society and Coventry Building Society.
Some cuts were also made – HSBC reduced rates by up to 0.12%, as did Saffron Building Society by up to 0.2%.
The average two and five-year fixed rates are now at 4.98% and 5.01%, respectively.
David Stirling, independent adviser at financial planning firm Mint Wealth, argued that the repricing is less about government or markets, and more about lenders themselves.
“These rises in rates seem to be more about lenders protecting their margins amid ongoing uncertainty than a signal that the mortgage market tide is changing,” he said in comments provided to Money by Newspage.
“Although average rates have inched down this year, any future cuts will depend heavily on inflation figures and our economic resilience, which will ultimately influence what the Bank of England decides to do.”
Shaun Sturgess, director at brokers Sturgess Mortgage Solutions, said the increases reflected a short-term adjustment rather than a structural shift in mortgage rates.
“These fluctuations are part of a bumpy downward trajectory: while the overall direction remains lower than six to twelve months ago, volatility in funding costs will continue to create occasional spikes,” he said.
What does all of this mean for first-time buyers?
Those looking to get on the property ladder might be concerned about rates increasing, but Moneyfacts’ finance expert Rachel Springall said rates on higher loan-to-value deals were stable.
“There are some competitive deals that can help borrowers save on the upfront cost,” she said.
“It is hoped that the choice of 95% LTV mortgages will rise in the coming months, as lenders have been urged to do more to boost UK growth. First-time buyers are a crucial part of keeping the market moving.”
She said that buyers might want to secure a deal if they felt rates weren’t going to fall much more and they were worried about rising house prices.
“There is also no telling how the markets will react to any significant decisions made in the autumn budget, an event which can be a blessing or a curse for future rate setting and can impact the morale of borrowers. If inflation gets out of control or economic uncertainties spike, borrowers can forget about more base rate cuts by the Bank of England this year,” she said.
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