Mortgage rates at five-month high ahead of Bank of England decision
Borrowers are bracing for more mortgage woes ahead of the Bank of England’s interest rate decision this week.
Mortgage rates have climbed to their highest level in nearly five months after some 25 lenders hiked their deals in the last week including the likes of HSBC, Lloyds and Nationwide.
The average two-year fix has risen to its highest since June at 5.67 per cent, while the five-year fix is at an April high of 5.72 per cent.
“Mortgage rates have only just caught up with earlier increases in swap rates, meaning lenders will now face further pressure to reprice,” said Moneyfacts head of consumer finance Adam French.
“Unless swap rates fall back significantly, borrowers need to be prepared for further mortgage rate increases in the weeks ahead.”
Volatility in the market has been driven by the re-pricing of swap rates, which serve as a primary benchmark for pricing fixed-rate mortgages and reflect expectations for future interest rates over two, five, or 10-year terms.
Bank of England ‘could be forced’ to raise rates
The Bank of England’s Monetary Policy Committee (MPC) will meet on Thursday, where they are expected to leave rates unchanged at 3.75 per cent. But economists across the City have begun pricing in the potential of a hike in November following renewed inflationary pressures from the US-Iran war.
The European Central Bank hiked its base rate to 2.5 per cent last week as the energy shock continues to ripple through the eurozone.
French said the rise has “strengthened market expectations that other central banks, including the Bank of England, could also be forced to raise rates in the months ahead”.
UK mortgage approvals slumped to 56,100 in July, down from 58,200 the month prior, according to figures from the central bank earlier this month.
Net borrowing also fell sharply to £4.3bn from £7.7bn as more of the economic impact from the war began to trickle through.
Property portal Zoopla has forecast annual price growth in the UK rental sector will reach four to five per cent this year as a result of pressures from elevated mortgage rates.
“Higher mortgage rates are not just impacting the sales market, they are keeping more would-be first-time buyers in rented homes for longer, reducing available supply just as the seasonal upturn in demand gets into full swing,” Richard Donnell, executive director at Zoopla, said.