72% of the Base Interest Rate Rise Already Factored into Mortgage Fixed Rates

By: MoneyFacts

Moneyfacts UK Mortgage Trends Treasury Report data, not yet published, highlights that two-year fixed rates were already on the rise before the Bank of England’s announcement earlier this month, with the average two-year fixed rate having risen by 0.18% since January 2018.

Charlotte Nelson, Finance Expert at Moneyfacts, said:

“The month-on-month figures show little movement, with the average two-year fixed mortgage rate increasing by just 0.01% in August to 2.53%. However, back in January the average rate stood at 2.35%, 0.18% lower than this month’s figure.

“This sizeable increase to the two-year fixed rate average clearly shows lenders had predicted that a rate rise was on the horizon since the start of the year. As a result, by the August announcement, 72% of mortgage rates had already factored the 0.25% rate rise into their two-year fixed mortgage rates during the first half of the year.

“Unlike in the run-up to the Bank of England’s rate increase in November 2017, the lead-up to this base rate rise saw the mortgage market lack activity, with rates and product numbers remaining relatively static. This is largely due to the significantly amount of activity in the mortgage market prior to the May announcement.

“Expectations of a base rate rise were high in May, with the vast majority of providers increasing their rates in anticipation and as a direct reaction to the much higher SWAP rates at the time. However, the subsequent lack of movement in base rate had little impact on the average two-year fixed rate.

“It seems that instead of reducing rates to their former levels, providers chose to wait and see if a base rate rise was likely. They did not have to wait long, but while the Bank of England has increased the rate, it appears that the static nature of the two-year fixed rate market is set to continue, with providers almost reaching an equilibrium.

“In comparison, the Moneyfacts UK Mortgage Trends Treasury Report shows the average two-year tracker rate fell after the expected rate rise in May failed to come to fruition while in the lead-up to August’s announcement the rate rose slightly, increasing by 0.03% to 1.95%. This is to be expected however, as tracker rates are more aligned with base rate and LIBOR and are therefore more susceptible to any rise or fall these markets may see.

“This should be a stark warning for borrowers as mortgage rates have been on the rise without the need of a base rate increase by the Bank of England. Any borrower sitting on their standard variable rate or coming to the end of a deal should remortgage as soon as possible to ensure they get the most cost-effective product possible.”

The Moneyfacts UK Mortgage Trends Treasury Report provides an in-depth monthly review of today’s changing mortgage trends, including all the relevant facts on the UK’s residential and buy-to-let markets.

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