The cost to lenders of raising funding on the swap rate market has soared in recent months. At the end of November, the two-year swap rate stood at 1.35% and today it stands at 1.98%, which is a rise of 47%.
Michelle Slade, spokesperson for Moneyfacts.co.uk, said: “The majority of lenders have increased rates since the start of the year, with some mortgage deals seeing rate rises of more than 0.50%.
“Borrowers who have delayed the decision to commit to a new fixed deal will now find themselves having to pay higher monthly payments,” she said.
On a mortgage of £150,000, a 0.50% increase in rate would add £42 per month to a borrower’s repayments.
However, the rising fixed rates offer a silver lining to savers because rising swap rates mean lenders would prefer to raise funding in-house, so have increased savings rates to attract higher levels of deposits.
“Any rise in base rate would push mortgage rates higher, so borrowers looking to fix their repayments should act sooner rather than later,” said Slade.
Ian Gray, mortgage manager at Largemortgageloans.com, said the City has already priced in a 0.25% rate rise by May.
“But the difference between the best tracker, which is Coventry’s at 2.19% and the best 2-year fix, currently Clydesdale’s at 2.99% is only 0.80, which means many borrowers are still willing to take a gamble. Two year fixes just don’t sell,” said Gray.
“But brokers need to think about why they are qualified to give advice. Ask yourself can this person afford to take the risk? If they are borrowing at five times income and have two kids, it’s a gamble they possibly shouldn’t be taking.”
