Higher swap rates to drive further increases
Lenders are being forced to reprice as they increase mortgage rates in response to recent rises to swap rates, with more reviews expected within days, according to Moneyfactscompare.co.uk analysis.
Since the start of September, HBSC and NatWest are two of the biggest banks to have increased rates, but more lenders are expected to follow.
Some, such as Family Building Society, have withdrawn fixed-rate mortgages from sale. However, such a reaction has been a less dramatic than in March, when many more pulled deals in response to soaring swap rates fuelled by the start of the conflict in the Middle East.
Pricing margins under pressure
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “The pricing margins among major lenders are under pressure due to renewed volatility in the swap rate market, so it is somewhat inevitable for them to adjust rates.
“The recent uplift in swap rates has started to filter into the pricing of fixed-rate mortgages, with more moves expected. Swap rates are much higher than they were a month ago and are a key influence on how lenders price their fixed-rate mortgages. Lenders look at margins very carefully, so it would be unwise to price their deals too low, if the expectations are for interest rates to rise, even if over the short-term.
“Mortgage rates are rising due to the escalating military conflict between the US and Iran, reigniting inflationary fears. The UK 10-year gilt yield has also risen further above 5% to an 18-year high recently due to a global bond sell-off, adding further pressure to the wholesale funding costs that underpin fixed mortgage pricing.”
She said it was also important to note that the pressure on swap rates over the past six months had not been caused by UK fiscal policy, which is why withdrawals and rate hikes were also not as dramatic as those witnessed in the aftermath of the ‘mini-Budget’ in 2022.
But Springall said it adds pressure for a November interest rate rise. “Borrowers expecting mortgage rates to drop in the coming weeks have had their hopes dashed. The prolonged conflict increases the chances for the Monetary Policy Committee to vote for an increase to the Bank of England Base Rate (BBR). However, this might not happen until November, according to economists.”
