The Bank of England is widely expected to leave interest rates unchanged this week but rising fixed mortgage pricing could place renewed pressure on buyers and property transactions.
The Monetary Policy Committee will announce its decision at noon on Thursday 30 July with Bank Rate currently standing at 3.75%.
Annual CPI inflation slowed from 2.8% to 2.6% in June, providing the Bank with greater scope to maintain its position. However, mortgage pricing has moved in the opposite direction as geopolitical uncertainty pushes up lenders’ funding costs.
L&C Mortgages says the average of the lowest 2-year remortgage rates offered by 10 leading lenders had increased from 4.53% to 4.75%. The comparable 5-year average rose from 4.58% to 4.83%.
BUYER COSTS INCREASE
For a £200,000 repayment mortgage over 25 years, L&C calculated that the movement added approximately £25 to monthly payments on a 2-year fix and £29 on a 5-year deal.
Halifax, Coventry Building Society and TSB are among the lenders to increase selected fixed rates this week.
For estate agents, the increases risk further constraining affordability and slowing buyer decision-making, even if the Bank votes to hold its benchmark rate for the fourth consecutive meeting.
David Hollingworth (main picture, inset), Associate Director of Communications at L&C Mortgages, says: “Market forecasts increasingly point towards the Bank of England holding the base rate once again in July, but borrowers can’t afford to rest on their laurels, as the market has continued to move quickly.
“Borrowers can’t take a base rate hold as a signal of cheaper, or steadier mortgage rates in the weeks ahead.”
FIXED RATES FOLLOW FUNDING MARKETS
Fixed mortgage pricing is influenced principally by lenders’ wholesale funding costs and market expectations for future interest rates rather than only the current Bank Rate.
Hollingworth says mortgage rates had been falling only a month ago, before renewed Middle East hostilities altered the outlook and triggered increases from the beginning of July.
“The good news is that lenders continue to compete, which helps ensure rates are as attractive as market conditions allow,” he adds.
“But borrowers wondering what to do for the best may be better to lock in a rate now to avoid more increases. They can review again prior to completion to see if rates have improved.”
The Bank of England held Bank Rate at 3.75% in June by a seven-to-two vote while the latest ONS figures confirmed the easing in inflation.
