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Will mortgage rates rise? The budget expects a sharp jump in swap rates

Posted on by L. Dreeye
Will mortgage rates rise? The budget expects a sharp jump in swap rates

  • Mortgage prices are largely based on Sonia swap rates, which have risen since the Budget.

Ed Magnus

Updated:

Mortgage costs could rise after Rachel Reeves’ budget led to a sharp rise in swap rates, which affect the prices of fixed-rate mortgages.

Pricing for fixed-rate mortgages is primarily based on Sony’s swap rates, an interbank lending rate based on future expectations of interest rates.

When Sony’s swaps rise enough, it often causes fixed mortgage rates to rise, and vice versa when they fall.

Today, five-year swaps have risen to 4.04 percent, up from 3.87 percent on October 29 – the eve of the budget. They were up from 3.7 percent a week earlier.

Will mortgage rates rise? The budget expects a sharp jump in swap rates

Return to the Upside: If swap rates remain unchanged, we will likely see mortgage rates rise.

The lowest five-year fixed-rate mortgage is currently 3.79 percent, and the lowest rates are rarely below equivalent swaps like they are now.

Only three major mortgage lenders have announced rate changes since the Budget.

Virgin Money and Halifax announced they would be raising rates, while Santander went the other way and said it would be cutting rates.

If swap rates remain at current levels, we are likely to see mortgage rates rise, according to Mark Harris, chief executive of mortgage broker SPF Private Clients.

“Swap rates have risen in response to the budget, but this may be a knee-jerk reaction rather than a prolonged period of higher rates,” he said.

“Only time will tell – if swaps remain at elevated levels for some time, lenders may have to revise prices even higher.

“Lenders have been reviewing interest rates this week – some raising rates, others cutting prices to attract new business.

“Borrowers looking to get a mortgage should plan ahead and speak with a broker covering the entire market to find the best deal available to them.”

Nicholas Mendez, technical manager for mortgages at John Charcol, expects this to be a short-term disruption. He expects mortgage rates to fall in the coming months.

Mendez predicts that rock-bottom mortgage rates could fall to about 3 percent next year.

“From a mortgage perspective, any immediate changes in interest rates following the budget are unlikely to change the medium-term downward trend in the base rate, although they may affect the rate of decline,” Mendes said.

“I expect the downward trend in mortgage rates to resume before the end of the year, likely returning to the best rates we’ve seen in recent memory, with further improvement next year.

“However, it is important for borrowers to remember that current fixed mortgage rates already take into account some expected base rate cuts next year.

“Consequently, I expect the lowest fixed rates to stabilize at a low 3 percent next year.”

How to find a new mortgage

Borrowers who need a mortgage because their current fixed-rate deal is ending or they are buying a home should explore their options as soon as possible.

What should I do if I need to remortgage?

Borrowers should compare rates, talk to a mortgage broker and be prepared to take action.

Homeowners can secure a new deal six to nine months in advance, often without any commitment to closing.

Most mortgage deals allow you to add a fee to your loan and charge it only when you take it out. This means borrowers can secure a rate without paying expensive arrangement fees.

Keep in mind that if you do this and don’t pay the closing fee, interest will be paid on the fee amount for the life of the loan, so this may not be the best option for everyone.

What should I do if I buy a house?

Those who have negotiated a home purchase should also aim to secure a rate as soon as possible so they know exactly what their monthly payments will be.

Buyers should avoid being overextended and remember that home prices could fall as higher mortgage rates limit people’s borrowing and purchasing power.

How to compare mortgage costs

The best way to compare mortgage costs and find the deal that’s right for you is to talk to a broker.

This is Money has a long-standing partnership with free broker L&C to provide you with free, expert mortgage advice.

Want to see today’s best mortgage rates? Use This is Money and L&C’s best mortgage rate calculator to show you offers that match your home’s value, mortgage size, term and fixed-rate needs.

If you’re ready to find your next mortgage, why not use L&C’s online mortgage search. It will search thousands of offers from over 90 different lenders to find you the best deal.

> Find the best mortgage deal with This is Money and L&C

However, be aware that rates can change quickly, so if you need a mortgage or want to compare rates, contact L&C as soon as possible so they can help you find the mortgage that’s right for you.

Mortgage services are provided by London & Country Mortgages (L&C), which is authorized and regulated by the Financial Conduct Authority (registration number: 143002). The FCA does not regulate most buy-to-let mortgages. Your home or property could be repossessed if you fail to make timely mortgage payments.

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