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After years of falling mortgage rates, many consumers could be forgiven for getting comfortable with record low repayments. Unfortunately, it looks as though this era is well and truly at an end – rates have slowly been edging up over the last few months, and our latest figures show that the average two-year mortgage rate has now hit its highest level since July 2016.
The figures, from moneyfacts.co.uk, reveal that the average two-year fixed mortgage rate has risen to 2.50% – the first time it's reached this level in 21 months. This is also up from 2.41% a month ago and 2.30% in April 2017, as well as marking a rise of 0.02% in the space of a week.
Rates have been edging up since the Bank of England decided to raise base rate last November, and analysis suggests that much of the latest uptick could be due to speculation of another impending rise. Charlotte Nelson, finance expert at moneyfacts.co.uk, points out that "both the SWAP and LIBOR markets have started to factor in a potential rise in the lead-up to May's base rate announcement, and providers now have little choice but to factor these higher costs into their mortgage pricing."
Many providers base their mortgage pricing activity on wider economic indicators and wholesale market costs, the latter referring to SWAP and LIBOR rates. When these rates rise, it becomes more expensive for mortgage providers to fund their lending activities, and they have no choice but to pass on those increased costs.
The fact that these rates are rising now is particularly telling. The same pattern occurred prior to the last base rate rise in November, suggesting a heightened probability that the rate will once again be raised at the next meeting. However, such a rise is by no means set in stone, as while markets and commentators have already priced in such a rise, recent events have caused many to question such speculation.
"The recent pattern had suggested that a base rate rise in May was almost a foregone conclusion," said Charlotte. "However, as well as the latest fall in inflation, Mark Carney suggested in a recent interview that Britain leaving the EU has cast doubt on an imminent rate rise. If the markets do cool off as a result, it will be interesting to see if mortgage rates will follow suit."
This just goes to show that we don't need an actual base rate rise to see mortgage rates increase; they're already on the up, and there's little sign of them reversing their trajectory any time soon. As Charlotte says, this means that "those borrowers sitting on their Standard Variable Rate, or coming to the end of their mortgage, will need to consider their options now," before rates have the chance to rise even further.
If you're on your lender's SVR, or are coming to the end of a fixed term, now's the time to consider remortgaging. Check out our mortgage and remortgage Best Buys to find the best mortgage rates available, or use our mortgage calculator for a more personalised overview.
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