Fixed mortgage rates start to rise

The cost of the average fixed-rate mortgage has risen in the past month even though base interest rates have been held at historic low levels.

Research from Moneyfacts.co.uk shows that the average two-year fixed rate has risen from 4.61 per cent to 4.64 per cent, while the cost of five and ten-year fixed deals have increased by a greater margin.

This reflects a rise in underlying swap rates, which determine the cost of fixed rate lending for banks. Longer-term swap rates have increased more in recent weeks, signalling that interest rates are expected to be higher in five or 10 years’ time.

Moneyfacts said it took a number of increases from lenders to move the market average – even by a slight margin. In the past few weeks Halifax, Royal Bank of Scotland and Woolwich, and a number of building societies including Britannia, Coventry, Yorkshire and Barnsley, have increased rates.

Borrowers with smaller deposits have been hardest hit. Moneyfacts said those with 15 per cent or less in cash looking for a 10-year deal have seen rates increase by 20 basis points in the past month.

“Borrowers hoping to take advantage of this period of low interest rates and lock into a long-term fixed are going to be disappointed,” said Michelle Slade, analyst at Moneyfacts. “In the last few weeks, swap rates for longer term deals have increased and this is being passed on through higher mortgage rates.

Two-year swap rates have continued to fall in recent weeks but lenders are not reflecting this in new mortgage rates and some are actually increasing rates to boost their margins.

Brokers said borrowers looking for payment security should consider locking into a fixed rate now to avoid being disappointed.

Melanie Bien, director of independent mortgage broker Savills Private Finance, said longer term deals – of say five years – could help protect borrowers from likely interest rate rises in the short term.

“The biggest challenge faces those with high loan-to-values who may struggle to get a fixed rate at a competitive price,” she said. “But if they don’t fix now, they could find themselves in a worse position if lenders do not return to the high loan-to-value market and house prices fall further.”