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Tuesday, 10 April 2012

Mortgage Rates Increasing despite low Base Rate

Figures released by Moneysupermarket today reveal increasing costs of mortgages to borrowers notwithstanding the historic low Bank of England base rate and the predictions of many that the 0.5 base rate is here to stay for some time to come.

The average two-year fixed rate has risen by 0.33% to 4.15% since October 2011 (equivalent to 8.3 times Bank Base Rate). Average five year rates have increased 0.15% since January to this year to 4.72% (or over nine times the Bank of England base rate).

Average 2 year trackers are up to 3.63% from 3.37% last August.

These increases have also been accompanied by a number of lenders increasing their Standard Variable Rates by an avaergage of 0.6% (see earlier blog)

Lenders have argued funding costs as the primary driver for these increases but as discussed in my blog re SVR rate hikes I am not convinced that this is the case.

Whatever the reason, the cost of mortgages to borrowers already stretched financially is going to increase over coming months. Whilst this may not be welcome in the short term there is an argument that gradually increasing mortgage costs is better than a sudden leap in cost in the event of a Bank of England Base rate hike. If the increases are the Lenders' way of smoothing in a gradual return to normality of the cost of borrowing mortgages and avoiding sudden payment shock a year or so down the line then I very much welcome the move. If in the alternative, lenders suddenly hike rates in answer to a base rate hike in addition to these creeping rate increases then I would consider the current increases to be something much more cynical.

As with everything in the current economic climate the future is far from certain and I guess only time will tell.

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