Experts had been expecting a ‘rate war’ in January in which prices fell to entice customers. But despite average rates dipping a little at start of the year, lenders have instead been raising prices upwards.
Since the beginning of January the average two-year fixed rate has risen from 5.47% to 5.52% according to Moneyfacts. Meanwhile, the average five-year fixed rate has climbed from 5.24% to 5.33%.
The catalyst for this increase is something called swap rates. These are a type of interest rate which lenders pay, and for this reason they have an impact on how much lenders charge their mortgage customers.
Swaps are affected by several factors including UK government bonds, also known as gilts. You may be aware gilts have risen in price recently. But swap rates are also impacted by expectations of what will happen to the Bank of England Base Rate in the near future. You can learn more about swaps in this article.
Swaps have been rising in January and lenders have been responding. So, what does this mean for our mortgage rates in the next few months?
Some brokers think these rising costs for borrowers might encourage the Bank of England to cut rates again.
Katy Eatenton, mortgage & protection specialist at Lifetime Wealth Management, speaking to the Newspage Agency, said: “Chaos in the markets in the first half of January has caused rates to go up and Nationwide has also now repriced in the wrong direction for borrowers. Activity levels haven’t dropped off a cliff but we had hoped for a more buoyant start to 2025.”
She added: “The weakness of the economy may result in rate cuts that will potentially provide the property market with the stimulus it needs,” she said.
But other mortgage experts are not so sure, including Rohit Kohli, Director at The Mortgage Stop who, speaking via the Newspage Agency, said: “Unfortunately, given the current political and economic uncertainty, it’s unlikely we’ll see a sudden drop in rates anytime soon.
“That said, everything hinges on February’s inflation figures. If inflation continues to ease and business confidence remains subdued, the Bank of England could find itself under growing pressure to cut the base rate.
“Such a move would help to support the housing market and provide some much-needed relief for borrowers.
“However, the end of the Stamp Duty incentives could add further challenges, potentially leading to a slowdown in new lending as buyers reconsider their options in this higher-rate environment.”
