Mortgage lenders are starting to increase rates – so if you’re buying a house soon, this could hit you in the pocket.
Coventry Building Society has already revealed it is putting up rates and the Co-operative Bank is withdrawing some of its cheapest deals. Experts predict that other lenders, particularly smaller ones, will follow suit.
Why are prices rising?
This news comes hot on the heels of comments from the Bank of England governor, Andrew Bailey, who hinted that the Bank would act ‘aggressively’ to curb interest rate cuts if inflation doesn’t continue to fall. However, not all Bank of England decision-makers agree with this approach, creating uncertainty in the market.
Adding to this uncertainty are the upcoming Budget, global instability (especially in the Middle East) and rising ‘swap rates’. Swap rates are what lenders use to price their mortgages, so when they go up, so do your monthly payments.
David Hollingworth, a mortgage expert at L&C Mortgages, warns: “The mortgage market has seen rates falling in recent months but that may be coming to an abrupt halt. Fixed rate pricing depends on what the market anticipates may happen to interest rates, and uncertainty over the forthcoming budget, mixed messages from the Bank of England and global unrest is pushing costs back up for lenders.”
What does this mean for borrowers?
The good news is that this might not be a disaster, especially if you’re prepared.
Hollingworth explains: “Borrowers may have been lulled into a false sense of security with round after round of rate improvements but this is a reminder that things can change. This isn’t a cause for panic but those that have been tempted to wait for lower rates may want to consider locking into a deal in case we see further increases. If expectation eases again it’s still possible to review rates.”
What about the future?
The Bank of England will make its next interest rate decision on 7 November, but no one is sure what will happen. Nicholas Mendes, a mortgage expert from John Charcol, says: “Markets had been pricing in rate cuts for November and December, but expectations for December have softened slightly, reflecting this uncertainty.”
He adds that if swap rates continue rising, we’ll see the best mortgage deals disappear first, with other deals being adjusted upwards shortly afterwards. However, Mendes believes any increases will be short-lived.
What should you do?
Mendes recommends that anyone coming to the end of a fixed-rate mortgage deal should consider securing a new rate now, rather than waiting. Speaking to an independent mortgage broker is a good way to keep track of the ever-changing deals available and get expert advice on the best option for you.