Several lenders increase fixed rates
The average mortgage rate in the UK has seen a modest increase, according to the latest figures from Moneyfacts.
The average overall mortgage rate has moved from 5% just three days ago to 5.01% today. For two-year fixed rate products, the average has risen from 4.96% on Monday to 4.98% today, while the average five-year fixed rate has climbed from 4.99% to 5.01% over the same period.
Several lenders have raised their fixed rates in recent days. NatWest, Royal Bank of Scotland, and NatWest Intermediary Solutions have each increased rates by 0.20%. Santander’s fixed rates are hiked by up to 0.11%, Gen H and Vernon Building Society have both raised rates by 0.15%, and Hodge has also implemented a 0.20% increase.
This comes despite the Bank of England reducing the base rate from 4.25% to 4% earlier this month. However, swap rates – which play a significant role in determining the cost of fixed rate mortgages – have moved higher. The two-year swap rate has increased from 3.655% to 3.752%, and the five-year swap rate has gone from 3.707% to 3.827%, Moneyfacts reported.
“The Bank of England base rate may grab headlines, but there are many more rates and indices that influence the cost of borrowing,” said Adam French (pictured right), head of news at Moneyfacts. “For starters, banks compete with one another for customers and appearing at the top of the best buy charts is a great way of doing that, but once commercial targets have been reached, they may pull back for a time.
“Another major influence on the cost of fixed rate mortgages – which make up around 96% of all new mortgage approvals in the UK, according to the Bank of England, is the rates banks charge one another to lend money, known as swap rates.
“The Bank of England’s Monetary Policy Committee meet eight times a year to set the base rate, however, an estimated half a million changes to the swap rate take place over the same period. This market is valued at £350 trillion, and rates can change every second - sometimes multiple times per second. And it is this market that heavily influences how banks and building societies price their fixed rate mortgage products.”
French noted that a wide range of factors can affect swap rates. “For example, the two-year swap rate fell from 4% to 3.78% in response to the economic shock of President Trump’s ‘liberation day’ tariffs, and the average two-year fixed rate mortgage followed, dropping from 5.33% to 5.29% within days. Whereas swap rates rose in response to the latest base rate cut as inflation forecasts increased. It’s this volatility that means mortgage rates can rise even after the base rate falls,” he explained.
French added that, looking towards the end of the year, borrowers could still expect mortgage costs to continue gradually declining, though occasional fluctuations might occur as broader economic data increasingly influences the rates set by lenders.
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