The upcoming Moneyfacts UK Mortgage Trends Treasury Report shows that fixed mortgage rates were already on the rise even before the Bank of England announced another increase to base rate this month. In fact, the average two-year fixed rate has risen by 0.18% since January, reflecting just how prepared providers have been.
"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%," explained Charlotte Nelson, finance expert at Moneyfacts. In contrast, the average rate stood at 2.35% in January.
The sizeable increase witnessed since the beginning of the year is a strong indication that most providers had predicted a rate rise this year, even if they may not have known exactly when it would take place. As a result, 72% of mortgage rates had already factored in the 0.25% rise by the time an increase was actually announced, earlier this month.
This is in contrast to the situation in the run-up to the previous base rate rise, which took place in November 2017. Back then, there was significant activity in the market around the time of the rise, as can be seen in the table above. This time, as Charlotte explained, "rates and product numbers remained relatively static … largely due to the significant amount of activity in the mortgage market prior to the May announcement", which saw a base rate rise predicted but not realised.
Having already increased their rates in anticipation of the May meeting, "it seems that instead of reducing rates to their former levels, providers chose to wait and see if a base rate rise was likely," Charlotte stated. Now, "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 that 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%," Charlotte said. "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 in these indicators."
This means that while those borrowers coming to the end of a fixed rate deal and who are looking to remortgage onto another similar deal may be breathing a sigh of relief, at least for the moment, those on tracker rates may want to consider jumping ship. It should also remind people that base rate doesn't need to increase for mortgage rates to go up.
Charlotte concluded: "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."
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