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Thoughts of a base rate rise are already impacting the mortgage market, with our latest data showing that the average two-year fixed mortgage rate has experienced an increase at all loan-to-values (LTVs) in the last month – yet it's rates at 95% LTV that have been hardest hit, which means first-time buyers may need to take the plunge sooner rather than later if they're going to get the best rates.
As the table below shows, the average two-year fixed mortgage rate at 95% LTV has seen a 0.10% increase from September, compared with a rise of just 0.03% at 60% LTV, which means the former is now far higher than it was six months ago.
|Average Two-Year Fixed Rate||Six Months Ago||A Month Ago||Today|
"The recent upward turn in rates is apparent across the mortgage market, however first-time buyers seem to have been hardest hit, seeing rates shoot up by 0.10% in just one month," commented Charlotte Nelson, finance expert at moneyfacts.co.uk. "This is disappointing news, especially considering these borrowers could potentially have to factor in another rate increase if base rate rises as speculated.
"Many first-time buyers will be frustrated by the news that rates are rising while base rate has yet to do so. However, it goes to show that we don't necessarily need to see a base rate rise for interest rates to increase."
Much of the latest rise to mortgage rates could have been driven by rising SWAP rates – the rates charged between banks for lending to each other – which in turn is being influenced by base rate speculation. Many providers have no option but to start factoring in the extra cost, and at 95% LTV, they have an added element of risk if base rate does go up, as the probability of borrowers defaulting on their mortgage could increase, which also needs to be factored in.
"When comparing the increases at 60% LTV to those at 95% LTV, the difference is stark," Charlotte continued. "Providers are looking to remain competitive to those remortgaging and protect their mortgage books in the event of a rate rise, which is why rate increases at lower LTVs are being kept to a minimum.
"The combination of rates rising now and a potential base rate rise around the corner could see first-time buyers who've managed to get a deposit together having to deal with higher monthly repayments, which could eat further into their income, causing them to struggle. Some borrowers turn to lengthening their mortgage term to combat these higher repayments, but this will cost them more in the long run.
"First-time buyers looking for a mortgage should shop around to get the best possible deal. Anyone considering getting onto the ladder in the future should try not to panic and seek advice from a financial adviser if they are unsure about their options."
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