Friday, November 8, 2024

Are mortgage rates about to go up? Budget sees swap rates spike

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  • Mortgage pricing is largely based on Sonia swap rates, which rose post-Budget

Mortgage costs could rise after Rachel Reeves’ Budget led to a spike in swap rates, which influence the pricing of fixed-rate mortgages.

Fixed-rate mortgage pricing is largely based on Sonia swap rates – the inter-bank lending rate, based on future interest rate expectations.

When Sonia swaps rise sufficiently it often results in fixed mortgage rates going up, and vice versa when they fall.

As of today, five-year swaps have risen to 4.04 per cent, up from  3.87 per cent on 29 October – the day before the Budget. They are up from 3.7 per cent a week earlier.

Going back up: If swap rates remain where they are , we are likely to see mortgage rates rise

The lowest five-year fixed rate mortgage is currently 3.79 per cent – and it is rare for the lowest rates to be below the equivalent swaps like they are now.

Only three major mortgage lenders have announced rate changes since the Budget. 

Virgin Money and Halifax have both announced they will be increasing rates while Santander has gone the other way and said it will be lowering rates.

If swap rates remain where they are currently, we are likely to see mortgage rates rise, according to Mark Harris, chief executive of mortgage broker SPF Private Clients.

‘Swap rates rose on the back of the Budget but this could be a knee-jerk reaction rather than a sustained period of higher rates’, he said.

‘Only time will tell – if swaps remain at elevated levels for a while, lenders may have to reprice higher.

‘Lenders have been repricing this week – some increasing rates, others reducing pricing in order to attract new business. 

‘Borrowers looking for a mortgage should plan ahead and speak to a whole-of-market broker to find the best deal available to them.’

Nicholas Mendes, mortgage technical manager at John Charcol, expects this to be a short-term blip. He expects mortgage rates to fall over the coming months.

Mendes is predicting that the lowest mortgage rates could fall to around 3 per cent next year.

‘From a mortgage perspective, any immediate interest rate changes following the budget are unlikely to alter the medium-term trend in base rate reductions, though they may influence the pace of cuts’, said Mendes.

‘I anticipate that the downward trend in mortgage rates will resume before the end of the year, likely returning to the best rates we’ve seen recently, with further improvements next year.

‘However, it’s essential for borrowers to remember that current fixed mortgage rates already factor in some expected base rate cuts over the coming year. 

‘Consequently, I expect the lowest fixed rates to stabilise around the low 3 per cent range next year.’

How to find a new mortgage

Borrowers who need a mortgage because their current fixed rate deal is ending, or they are buying a home, should explore their options as soon as possible.

What if I need to remortgage? 

Borrowers should compare rates, speak to a mortgage broker and be prepared to act.

Homeowners can lock in to a new deal six to nine months in advance, often with no obligation to take it.

Most mortgage deals allow fees to be added to the loan and only be charged when it is taken out. This means borrowers can secure a rate without paying expensive arrangement fees.

Keep in mind that by doing this and not clearing the fee on completion, interest will be paid on the fee amount over the entire term of the loan, so this may not be the best option for everyone. 

What if I am buying a home? 

Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be. 

Buyers should avoid overstretching and be aware that house prices may fall, as higher mortgage rates limit people’s borrowing ability and buying power.

How to compare mortgage costs 

The best way to compare mortgage costs and find the right deal for you is to speak to a broker.

This is Money has a long-standing partnership with fee-free broker L&C, to provide you with fee-free expert mortgage advice.

Interested in seeing today’s best mortgage rates? Use This is Money and L&Cs best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

If you’re ready to find your next mortgage, why not use L&C’s online Mortgage Finder. It will search 1,000’s of deals from more than 90 different lenders to discover the best deal for you.

> Find your best mortgage deal with This is Money and L&C

Be aware that rates can change quickly, however, and so if you need a mortgage or want to compare rates, speak to L&C as soon as possible, so they can help you find the right mortgage for you. 

Mortgage service provided by London & Country Mortgages (L&C), which is authorised and regulated by the Financial Conduct Authority (registered number: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage 

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