As the Bank of England anticipates a rate cut next week, lenders are making both upward and downward adjustments to their fixed mortgage rates. Experts predict more rate reductions as swap rates stabilize, but borrowers should still act quickly to secure the best possible deals.
Ahead of an expected interest rate cut next week, lenders are making both upward and downward adjustments to their fixed mortgage rates . As of tomorrow (31 January), Santander will increase some of its fixed rates by 0.02 percentage points, but simultaneously reduce its five-year fixed deals by up to 0.28 percentage points. NatWest is raising its fixed mortgage rates by up to 0.11 percentage points, while TSB and Co-Op have reduced several of their rates today (30 October).
These fluctuations have persisted for several weeks, following a period of rising rates at the end of last year. This surge was driven by increasing swap rates, which reflect market expectations for future interest rates set by the Bank of England. Swap rates directly influence mortgage rates. However, as swap rates have begun to stabilize and in anticipation of a predicted interest rate cut next week, experts anticipate more mortgage rate reductions.David Hollingworth of brokers L&C Mortgages stated, “The mixed bag of rate increases and reductions is largely due to the recent turmoil in the gilt markets. This resulted in swap rates edging upwards. Although not a dramatic spike, it was enough to force many lenders to react and increase mortgage rates. Others opted to weather the storm, and some, like Nationwide, have only recently made adjustments, increasing rates yesterday. Simultaneously, better-than-expected inflation data has helped ease swap rates back down. This is enabling some lenders that had hiked rates to re-evaluate their pricing and gradually lower their rates.” Nick Mendes of brokers John Charcol added, “I anticipate a combination of reductions and increases, but generally speaking, reductions should be on the horizon. The only reason we might see increases is due to service levels, as we witnessed with NatWest at the end of last week when they held firm for an extended period while others around them were raising rates.”According to Moneyfacts, the average two-year fixed rate stands at 5.52 percent, while the average five-year rate is 5.32 percent. However, some of the most competitive deals are significantly cheaper, including a two-year fix with First Direct at 4.23 percent, a three-year fix at 4.07 percent, and a 4.13 percent five-year fix. The Bank of England is widely predicted to cut the base rate by 0.25 percentage points to 4.5 percent next week. In response, experts hope that mortgage rates will continue to decline, although there are concerns that this decrease may be gradual. Aaron Strutt of brokers Trinity Financial said, “The current market presents a mixed picture of rate hikes and price cuts. Many economists at major banks are forecasting at least three or four base rate reductions this year. This should translate to cheaper fixed rates, although there are no guarantees. Lenders’ costs of funding mortgages have been decreasing, leading to frustration that fixed rates have increased.” The volatile market not only raises concerns for homeowners but also poses a challenge for Chancellor Rachel Reeves and the Government, who promised to alleviate bill pressures for households across the country. One of Prime Minister Sir Keir Starmer’s key goals for the Government was to enhance living standards, a metric measured by real household disposable income. For anyone approaching the end of their fixed-rate term or considering a new mortgage deal, brokers strongly advise acting swiftly. Consulting a mortgage broker is highly recommended as they can provide personalized advice and access a wider range of products than those available directly to consumers. Brokers can also guide borrowers in deciding whether to secure a rate now and switch to a new rate if market conditions improve. Securing a fixed rate now, even if it appears high compared to previous years, could offer valuable protection against potential further increases in the coming months
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