Mortgage rate warning three months after base rate rise

26 February 2018

Just a short three months ago, the Bank of England decided to increase the base rate for the first time in 10 years. This was almost seen as foregone conclusion, with providers increasing fixed rates in anticipation. Research from moneyfacts.co.uk shows that in the three months after the rise, providers have opted to keep rates static, due to the predictions of another rise in May.

Charlotte Nelson, Finance Expert at moneyfacts.co.uk, said:

“With a rate increase just a few months ago, many would have assumed that the market would be still reeling from its effects. However, it seems that due to the inevitably of the rise itself, the mortgage market has stabilised relatively quickly.

“As expected, Standard Variable Rate (SVR) customers have experienced the largest increase, rising from 4.60% to 4.76%, but this is still just shy of the 0.25% increase. Despite this, borrowers sitting on the SVR should not rest on their laurels.

“The talk of another base rate rise as early as May could mean that these borrowers find themselves significantly worse off. A further 0.25% rise means that borrowers might see a £35 increase to monthly repayments* (based on the average SVR) in a short six months.

“Similarly, fixed rates rose in advance of the announcement on 2 November, which dampened the effects the rise may have had. Since then, the average rate has remained relatively static, as providers have opted to wait and see what the future holds.

“The tide is starting to turn, as SWAP rates - which banks use to price their fixed rate mortgages - are starting to rise once again. This is a similar scenario to before the last rate rise, as providers are again starting to factor SWAP rate rises into their pricing. In fact, 22 individual lenders have increased rates in their range since the beginning of February, with some more than once.

“The mortgage market is seeing a double-whammy: higher SWAPs and an increased LIBOR rate indicates that a base rate rise in the near future is likely. The only way from here appears to be up, so borrowers who are sitting on their SVR, or coming to the end of their deal, would be wise to look for a fixed rate. It is now important that they act fast to ensure they get the best possible deal.”

True cost scenarios available on request.

*Based on a £150,000 borrowing amount on a repayment mortgage, over a 25-year term.