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Mortgage rates surge to seven-month high

Mortgage rates surge to seven-month high

Category: Mortgages

Updated: 16/06/2016
First Published: 15/06/2016

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 It is now over 6 months old so the content may be out of date.

The mortgage market and economy as a whole are undergoing a period of intense uncertainty at present, and this has had a knock-on effect on mortgage rates, with our latest figures showing that the average two-year fixed rate has risen to a seven-month high.

Re-pricing rates

The figures, from the latest Moneyfacts UK Mortgage Trends report, show that the average two-year fixed mortgage rate has risen from 2.54% to 2.58% this month, a notable increase of 0.04% and the highest seen since November last year. Not only that, but it's the largest monthly movement recorded since the end of 2015 and is the first rate rise seen since February, signalling a clear reversal of fortune – and potentially the start of a continued rise.

This is despite the fact that the number of products available has increased (up by 103 on a monthly basis to stand at 3,600), which suggests that the new products aren't as competitive as they have been in recent months; essentially, it won't be difficult to find a mortgage, but it could be hard to find one with as low a rate as you were expecting.

Many lenders are actively re-pricing their mortgages, too – a total of 5,300 product changes were recorded this month, an increase of 12% from 4,725 the month previously – and given that the average rate is rising, we can guess that the majority of those re-pricing activities are rate rises rather than cuts.

So, not only are providers launching higher-priced products, but they're increasing the rates on those they already have available, which is fuelling the overall rise in average mortgage rate. But why are they doing that?

Wait and see

Well, much of it can be attributed to the widespread uncertainty in the mortgage market and the wider economy. Providers appear to be adopting a "wait and see" mentality until the landscape becomes clearer in the latter half of the year, but it's the level of risk that's arising from all this uncertainty that's driving their pricing decisions.

Indeed, analysis suggests that many are actively trying to deter borrowers by pushing up rates – they're not confident of the lending landscape or what could happen to it in the months ahead, with borrowers of all kinds simply deemed as too risky to offer such competitive rates to.

Interestingly, borrowers who would traditionally be seen as higher risk are not the only ones bearing the brunt of rate increases. Providers are raising rates across the loan-to-value (LTV) spectrum, not just at the 90% LTV+ level, which just shows how risky they're viewing the market as a whole.

Average rates are reflecting this perceived level of risk, and this trend is likely to continue until the market becomes more stable and certainty returns. Providers simply can't afford to offer mortgages at record low rates given the level of risk involved, so unfortunately, there's a very real possibility that mortgage rates will rise further in the months head.

What can I do?

Mortgage rates may be rising, but that doesn't mean there aren't some good deals out there. The best thing you can do is compare the options thoroughly – start by checking out our mortgage best buys – and if you were thinking of remortgaging or buying that new property, it could be worth taking the plunge sooner rather than later. By fixing to a low-rate mortgage now you could avoid any rate rises in the months ahead, and will be able to secure affordable repayments for the long term.

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.