- Mortgage pricing is largely based on the Sonia swap rate, which rose post-budget
Mortgage costs could rise after Rachel Reeves’ budget led to a spike in swap rates, which affect the pricing of fixed-rate mortgages.
The pricing of fixed-rate mortgages is largely based on the Sonia swap rates – the interbank rate, based on future interest rate expectations.
When the Sonia swaps rise enough, this often results in a rise in the fixed mortgage rate, and vice versa when it falls.
As of today, five-year swaps have risen to 4.04 percent, compared to 3.87 percent on October 29, the day before the budget. They are up from 3.7 percent a week earlier.
We are going up again: if the swap interest rate remains at the same level, there is a good chance that the mortgage interest rate will rise
The lowest five-year fixed rate mortgage is currently 3.79 percent – and it’s rare for the lowest rate to be below equivalent swaps like it is now.
Only three major mortgage providers have announced interest rate changes since the budget.
Virgin Money and Halifax have both announced they will increase rates, while Santander has gone the other way and said it will cut rates.
If swap rates remain at current levels, mortgage rates are likely to rise, said Mark Harris, CEO of mortgage broker SPF Private Clients.
“Swap rates rose on the back of the budget, but this could be a knee-jerk reaction rather than a sustained period of higher interest rates,” he said.
“Only time will tell: if swaps remain at elevated levels for a while, lenders may have to reprice at a higher rate.”
‘Lenders have adjusted their prices this week: some are raising rates, others are lowering prices to attract new customers.
‘Borrowers looking for a mortgage should plan ahead and speak to a broker from across the market to find the best deal available to them.’
Nicholas Mendes, mortgage technical manager at John Charcol, expects this to be a short-term problem. He expects 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 post-budget rate changes are unlikely to change the medium-term trend of base rate cuts, although they could influence the pace of cuts,” Mendes said.
‘I expect the downward trend in mortgage rates to resume before the end of the year and likely return to the best rates we have seen recently, with further improvements next year.
‘However, it is essential for borrowers to remember that the current fixed mortgage rate already takes into account a number of expected reductions in the base rate over the coming year.
“That’s why I expect the lowest fixed interest rates to stabilize around the low 3 percent mark next year.”