UK mortgage rates rise after bond market volatility
Just in: The average rates on UK fixed-term mortgages have risen this morning, as last week’s bond market turbulence ripples across the financial world.
Data provider Moneyfacts has just released its latest mortgage pricing, showing that both two and five-year mortgages are more expensive than at the end of last week.
They say:
The average 2-year fixed residential mortgage rate today is 5.63%. This is up from 5.60% the previous working day.
The average 5-year fixed residential mortgage rate today is 5.68%. This is up from 5.64% the previous working day.
There are also fewer mortgage products to choose from, suggesting that some products have been pulled from the market by lenders keen to reprice them.
Moneyfacts reports that there are currently 7,485 residential mortgage products available down from 7,618 on Friday.
Fixed-term mortgages are priced off swap rates, which measure the cost of borrowing for lender.
Last week the five-year swap rate rose above 4.52% this week, the highest level since October 2023.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, explains:
Share“The pricing margins among major lenders are under pressure due to renewed volatility in the swap rate market, so it is somewhat inevitable for them to adjust rates. Major lenders, which include HSBC and NatWest, have increased rates since the start of September. The recent uplift in swap rates has started to filter into the pricing of fixed rate mortgages, with more moves expected in the coming days. Swap rates are much higher than they were a month ago and are a key influence on how lenders price their fixed-rate mortgages. Lenders look at margins very carefully, so it would be unwise to price their deals too low, if the expectations are for interest rates to rise, even if over the short-term.
“Mortgage rates are rising due to the escalating military conflict between the US and Iran, reigniting inflationary fears. The UK 10-year gilt yield has also risen further above 5% to an 18-year high recently due to a global bond sell-off, adding further pressure to the wholesale funding costs that underpin fixed mortgage pricing. However, the hit to the mortgage market over recent days pales in comparison to when the conflict in the Middle East began around six months ago, when many lenders pulled fixed rate deals. While this alone might still not reassure some borrowers, it is worth noting that the pressure on swap rates over the past six months has not been caused by UK fiscal policy, which is why withdrawals and rate hikes are nowhere near the scale experienced in the aftermath of the ‘mini-Budget’ in 2022.