by Mark Johnston
Borrowers are anxiously waiting to see if the Bank of England’s Monetary Policy Committee decide to increase interest rates to try and combat raising inflation here in the UK. But experts are already pointing out that mortgage costs are on the increase despite any changes to the Bank of England’s base rate. A typical five year fixed rate mortgage for an average priced home in Britain has increased by up to £2,500 even though the Bank of England base rate has remained at the 0.5% low.
With the cost of wholesale borrowing spiraling, many lenders have increased their rates in line with the price of swaps which are the financial instruments that mortgages providers use to raise capital to allow them to lend to their customer base.
With analysts in the city expecting a base rate increase anytime soon, lenders have been quick to account for this by increasing their fixed rate deals to avoid being caught out. Many borrowers have been moving across to these types of mortgages to avoid any future increase in the Bank of England base rate. Securing a fixed rate deals means that borrowers will have the confidence that the amount they pay each month will not increase during that time.
David Hollingworth, from mortgage brokers London & Country, said: “Heightened anticipation of a hike in interest rates has led to a rapid shift in fixed rate mortgage pricing. Lender after lender has moved to increase its rates, often on more than one occasion. Borrowers eager to secure a fixed deal to protect against rising rates will find that they’ve missed out on the lowest mortgage rates, although the products still look good in historical terms.”
Another leading mortgage broker from Private Finance, Melanie Bien went on to say: “The cost of fixed-rate mortgages has soared since the start of the year as the money markets factor in a rate rise sooner rather than later. Those who have not yet secured a fixed rate will now find that the gap in pricing between trackers and fixes is significant, and likely to increase further still.
She also pointed out that fixing a mortgage is not right for everyone by saying: “Borrowers on a cheap standard variable rate or tracker may decide the price of security is not worth the extra cost as they may be able to absorb several quarter-point increases in base rate before they would be paying more than if they had opted for a fixed rate.”
Over the past few months rising swap rates has pushed up the cost of borrowing. An average five year fixed rate mortgage recently hit 5.66%, this is a steep rise when compared to January 2010 figure of 5.33%. The increase equates to around £40 per month which over the course of a year works out at about £500 or £2,500 over the five year period.
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