Potential Rise in Mortgage Rates After Period of Decline

Amidst recent drops in mortgage rates due to intense competition among lenders, industry experts now warn that this trend might soon reverse. Coventry Building Society has announced an increase in its mortgage rates, effective this Friday, and market watchers anticipate that other lenders will soon make similar moves.

David Hollingworth, an associate director at L&C Mortgages, highlighted the potential shift in market dynamics, stating, “The mortgage market has seen rates falling in recent months but that may be coming to an abrupt halt.” The downward trajectory in rates had encouraged an uptick in activity within the UK housing market, with more buyers and sellers engaging in transactions.

Figures from financial information service Moneyfacts show that the average interest rate for a two-year fixed mortgage with a 40% deposit has decreased from 6.16% last year to 4.84% in October. This reduction is largely attributed to competition amongst lenders and a cut in the benchmark interest rate by the Bank of England this past July—the first such reduction in four years.

However, rising swap rates, which are critical in determining the cost of fixed-rate mortgage deals, suggest a possible increase in borrowing costs. These upward movements have been linked to concerns over impending budget announcements, the Bank of England’s policy directions, and global economic tensions.

Aaron Strutt from Trinity Financial remarked on the possible market volatility due to the forthcoming Budget and existing economic conditions. “There is a lot of concern about the upcoming Budget, so once it has been announced we could see the money market settle down again,” he said.

Simultaneously, prospective first-time buyers may face additional challenges if mortgage rates rise alongside increasing house prices and rental costs. Tina Paillet, President of the Royal Institution of Chartered Surveyors (RICS), warned of the imbalance in the housing market, stating, “Demand is consistently outstripping supply.” This could lead to further pressure on both buying and renting housing costs.

With potential shifts looming, Nicholas Mendes from John Charcol brokerage advises borrowers to consider securing current mortgage rates swiftly to preempt any upward trend. “For those looking for a mortgage soon, the message from brokers is to lock in a deal as soon as possible to avoid the risk of getting caught by higher rates,” he recommended.