The cut to base rate was expected to herald a dramatic fall in mortgages rates, and while that appeared to be happening for a time, we've got some bad news – variable mortgage rates have risen significantly in the last month in spite of the rate cut, returning to levels last seen in July. Essentially, this has cancelled out the "base rate effect", and means that average rates have returned to pre-cut levels.
The figures, taken from the latest Moneyfacts UK Mortgage Trends report, show that the average two-year tracker mortgage rate has risen by 0.07% this month to hit 2.01%, the same as recorded in July. This marks an increase from 1.94% in September and completely cancels out the fluctuations seen in the immediate aftermath of the base rate cut.
Indeed, we reported last month that many providers had actually pre-empted the rate cut by raising their variable rates in the weeks leading up to the announcement. As the table below shows, the rate rose from 2.01% in July to 2.13% in August, before falling to 1.94% in September, supposedly in response to the rate cut. However, the increase in the month before meant that the real terms base rate cut was only 0.07% - and this has now been entirely nullified.
This is despite the fact that the number of variable rate mortgages has actually increased, which would typically suggest a boost in competition. Instead, the opposite appears to be occurring, with providers actively raising rates or launching higher-priced new products. Most simply don't seem to be tracking base rate, suggesting that other factors are at play.
"After the average two-year variable rate reached an historic low in September following the Bank of England's cut to base rate, a logical assumption would have been for the market to stabilise at this new low," commented Charlotte Nelson, finance expert at Moneyfacts.
"Instead, it has increased back to the level it stood at shortly after the EU referendum. This increase has effectively offset any reductions that may have occurred after the base rate announcement on 4 August."
Given that we'd expect variable mortgage rates to remain stable – or ideally for borrowers, to keep falling – there must be something else at play, and much of it can be attributed to economic factors and the uncertainty facing the market at the moment.
Charlotte explains: "This increase to the average two-year tracker rate reflects the uncertainty in the market. Providers are facing heightened risks as a result of the wider economic issues such as house price stability and a potential increase to the inflation rate, which may affect household expenditure. This has likely made the low level seen in September unsustainable … the variable rate market is an easy target for increased rates."
Variable rates may be edging up, but fixed rates are still falling, even though this sector isn't bound by base rate fluctuations! They're falling quickly, too, with the average two-year fixed rate down by 0.06% in the last month to a new record low of 2.38%.
The fixed sector also saw a boost in mortgage availability, mirroring the variable rate sector. However, the fact that rates fell suggests that competition is still intense among fixed rate providers – they're more concerned about locking in fixed rate borrowers for the long-term and are willing to slash their rates in order to achieve it – which means now is a great time to take advantage!
Compare the top fixed rate mortgages and see if you can lock in to a better deal
Want the flexibility of a variable mortgage? The fact that rates are edging up means it's more important than ever to shop around, so check out the top deals to get started
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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