In April, the UK witnessed the most substantial monthly jump in mortgage rates since March 2024. According to the latest data from the Moneyfacts UK Mortgage Trends Treasury Report, the average rate for a two-year fixed mortgage climbed from 5.80% at the end of March to 5.91% by the start of May. Similarly, the five-year fixed rates also experienced a rise, moving from 5.39% to 5.48% during the same period.
Why Are Rates Increasing?
The increase in mortgage rates may have taken many by surprise, especially following a six-month period of declining rates from September 2023 to February 2024. The shift in trend is largely due to the delay in expected cuts to the base rate combined with ongoing fluctuations in the swap market, which influences the cost of borrowing between financial institutions. These factors have prompted lenders to reassess their pricing strategies, leading to the withdrawal of some sub-5% mortgage deals.
Despite the rise in rates, there are still some positive developments in the mortgage market. Rachel Springall, a Finance Expert at Moneyfactscompare.co.uk, points out that the average shelf-life of mortgage products has now stabilised at 28 days, a significant improvement from the 12-day shelf-life recorded in July 2023.
Moreover, while some products have been withdrawn, there hasn’t been a mass exodus from the market. In fact, the overall number of mortgage options available increased to 6,565, the highest in over 16 years.
Impact on Those Seeking New Mortgages
Homeowners nearing the end of their initial fixed-rate periods are likely to encounter higher rates when looking for new deals. For perspective, the average rate for a two-year fixed mortgage in May 2022 was significantly lower at 3.03%, and even more so in May 2019 at 2.85% for a five-year fixed mortgage.
Although the current rates might discourage some from locking in a new fixed deal, opting for one could still be more economical than transitioning to a lender’s Standard Variable Rate (SVR). The average SVR in May remained high at 8.18%, only slightly below the peak of 8.19% seen in late 2023. By choosing a typical two-year fixed deal instead, borrowers could save approximately £290 per month on a £200,000 mortgage over a 25-year term.
Is a Variable Rate Mortgage Right for You?
For those predicting a cut in the UK’s central interest rate later this year, a base rate tracker mortgage might seem appealing. This type of mortgage adjusts the interest rate based on changes to the central bank’s base rate.
However, it’s essential to assess whether a variable rate mortgage aligns with your financial situation and long-term goals. If you’re unsure, consulting a mortgage broker can provide personalised advice and help navigate the complex mortgage market.