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MORTGAGE ALERT: average rates are rising

MORTGAGE ALERT: average rates are rising

Category: Mortgages

Updated: 15/03/2016
First Published: 09/03/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Borrowers, we have a bit of unwelcome news for you. The recent period of certainty in the mortgage market (which helped reduce rates) appears to have been short-lived, with our latest figures showing that volatility has returned – and it's pushed average rates up as a result.

A new path

The average two-year fixed mortgage rate rose by 0.02% this month to stand at 2.56%, up from 2.54% in February and reversing that month's reduction, and also marking the first increase seen since September last year. It's a similar story in the variable sector of the market, which has seen an even sharper increase in rate – the average two-year tracker rate has risen by a significant 0.05% to stand at 2.07%, the highest seen in 11 months (it stood at 2.08% in April 2015).

This may come as something of a surprise, particularly given the repeated indications that base rate won't rise for the foreseeable future. It's even been suggested that the rate would be cut further, and in a traditional environment, mortgage rates would have fallen dramatically after that kind of announcement. The fact that they haven't – and have instead done the opposite – suggests that other economic factors are now at play, and arguably, the key factor is now the EU referendum and potential Brexit later this year.

Uncertain outcome

This has understandably led to uncertainty in the market, most notably in terms of future affordability, and specifically, the probability of borrowers defaulting on their mortgage. We simply don't know what either outcome will mean for individual finances, and as a result, providers have had to factor a higher level of risk into their pricing – and they've had no option but to raise rates in the process.

It's had a particularly swift impact given the heightened level of competition that was seen during much of last year. Providers were continually cutting rates in order to attract new borrowers and beat their competitors, and this intensity meant the margins that are usually left to accommodate risk were largely absorbed.

As a result, any potential change in the market would mean that providers are forced to raise rates, as they could potentially lose money otherwise. That's exactly what's happened now that Brexit is a factor – the higher level of risk means that providers have to claw back the margins they'd previously sacrificed for competition, and in turn, rates have escalated.

Unfortunately, there may not be an end to this pattern in the near future. As with any other threat to affordability, a higher level of risk means that products are priced accordingly, which essentially means that mortgage rates could continue rising until the path becomes more certain.

What next?

If you're thinking of taking the plunge, now's the time to see what mortgage deals are out there. The low rates that are currently available may not be around forever, so it's time to get searching! Compare mortgage rates to see if you can find the deal for you.

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.