- Mortgage prices are largely based on Sonia swap rates, which increased after the budget.
Mortgage costs could rise after Rachel Reeves’ budget led to a rise in swap rates, which influence the price of fixed-rate mortgages.
The price of fixed rate mortgages is largely based on Sonia swap rates, the interbank interest rate, based on expectations of future interest rates.
When Sonia swaps rise high enough, it often results in fixed mortgage rates rising, and vice versa when they fall.
Today, five-year swaps have risen to 4.04 per cent, up from 3.87 per cent on October 29, the day before the budget. They have increased from 3.7 percent the previous week.
Coming back up: If swap rates stay where they are, we will likely see mortgage rates rise.
The lowest five-year fixed-rate mortgage is currently 3.79 percent, and it’s rare for the lowest rates to be below equivalent swaps as they are now.
Only three major mortgage lenders have announced rate changes since the budget.
Virgin Money and Halifax have announced they will increase rates, while Santander has gone the other way and said it will reduce them.
If swap rates remain where they are currently, we are likely to see a rise in mortgage rates, according to Mark Harris, chief executive of mortgage broker SPF Private Clients.
“Swap rates increased thanks to the budget, but this could be a knee-jerk reaction rather than a sustained period of higher rates,” he said.
‘Only time will tell: if swaps remain at high levels for a while, lenders may have to revalue them further.
‘Lenders have been reviewing prices this week – some raising rates, others cutting prices to attract new business.
“Borrowers looking for a mortgage should plan ahead and speak to a broker across the market to find the best deal available to them.”
Nicholas Mendes, mortgage technical director at John Charcol, expects this to be a short-term problem. Expect mortgage rates to fall in the coming months.
Mendes predicts that the lowest mortgage rates could fall to around 3 percent next year.
“From a mortgage perspective, any immediate changes in interest rates following the budget are unlikely to alter the medium-term trend in base rate reductions, although they may influence the pace of cuts,” Mendes said.
‘I anticipate the downward trend in mortgage rates will resume before the end of the year, likely returning to the best rates we have seen recently, with further improvements next year.
‘However, it is essential for borrowers to remember that current fixed mortgage rates already take into account some expected cuts to base rates over the next year.
“Consequently, I expect lower fixed rates to stabilize around the low 3 percent range next year.”