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Higher Swap rates triggering mortgage rate rises

by: Chris Menon
  • 09/10/2017
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Higher Swap rates triggering mortgage rate rises
Mortgage interest rates are creeping up as swap rates have risen steeply with increased speculation and expectation that the Bank of England Base Rate will be lifted shortly.

Data from Moneyfacts monthly UK Mortgage Trends Treasury Report highlights the trend of stiffening mortgage interest rates.

Analysis by conveyancer LMS showed that borrowers had begun to cash in and secure the best rates in August in preparation for potential rate rises later this year.

Charlotte Nelson, finance expert at Moneyfacts, said:  “While month-on-month figures show the average two-year fixed mortgage rate has fallen, this doesn’t quite tell the whole story. In fact, the average rate has now increased to 2.24% after a 0.04% rise from 1 October. 

She added: “The higher inflation figure announced on 12 September, coupled with the Bank of England stepping up its interest rate warnings, gave a clear indication to markets that a base rate rise is likely in the near future. This acted as a catalyst for Swap rates to rise, with the two-year swap rate increasing from 0.54% to 0.82% in just one month.”

Re-forging Swap rate link

According to Moneyfacts in the past few years the link between mortgage rates and Swap rates appeared to be broken, not only due to the volatility of the rates but also the fierce competition among lenders in the mortgage market. However, the substantial increase in Swap rate seen in the past few weeks has quickly changed this, with 21 lenders upping their rates since 12 September. 

Nelson explained: “Providers are now starting to factor swap rate rises into their pricing, causing the average two-year fixed rate to start creeping up, and this new trend is showing no signs of abating yet.

With rates having sat at record lows, it is difficult for providers to swallow the increased cost by any means other than increasing the rates on offer. As a result, lenders are now treading a fine line between needing to remain competitive to protect their mortgage book and absorbing the cost of higher Swap rates. 

“The combination of higher Swaps and an increased LIBOR (London Inter-bank Offered Rate) has furthermore given the mortgage market the strongest indication for some time that a base rate rise is likely. This means it is crunch time for borrowers looking to remortgage; it is vital they act fast to ensure they get the best possible deal before their rates increase,”  she added.


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