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BoE rate speculation sparks price rise in two-year fixes

New data and analysis from Moneyfacts has revealed that the average two-year fixed rate mortgage is starting to rise due to the increased speculation of the Bank of England raising interest rates.

The figures show that the average rate has increased to 2.24% after a 0.04% rise from the 1st October.

Charlotte Nelson, Finance Expert at Moneyfacts, said: “The higher inflation figure announced on 12 September, coupled with the Bank of England stepping up its interest rate warnings, gave a clear indication to markets that a base rate rise is likely in the near future. This acted as a catalyst for swap rates to rise, with the two-year swap rate increasing from 0.54% to 0.82% in just one month.

In the past few years, the link between mortgage rates and swap rates appeared to be broken, not only due to the volatility of the rates but also the fierce competition among lenders in the mortgage market. However, the substantial increase in swap rate seen in the past few weeks has quickly changed this, with 21 providers upping their rates since 12 September.

Providers are now starting to factor swap rate rises into their pricing, causing the average two-year fixed rate to start creeping up, and this new trend is showing no signs of abating yet. With rates having sat at record lows, it is difficult for providers to swallow the increased cost by any means other than increasing the rates on offer. As a result, lenders are now treading a fine line between needing to remain competitive to protect their mortgage book and absorbing the cost of higher swap rates.

The combination of higher swaps and an increased LIBOR rate has furthermore given the mortgage market the strongest indication for some time that a base rate rise is likely. This means it is crunch time for borrowers looking to remortgage; it is vital they act fast to ensure they get the best possible deal before their rates increase.”

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