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The fall in mortgage rates could come to an abrupt halt, according to brokers, with the expectation of a rise in home loan costs in the coming days.
Lenders have faced intense competition to attract borrowers in recent weeks, leading to a steady decline in interest rates on new fixed-rate mortgage deals.
This has led to greater activity among buyers and sellers in the UK property market.
But one lender, Coventry Building Society, is raising mortgage rates on Friday, with others expected to follow suit in the coming days.
“The mortgage market has seen rates fall in recent months, but that could come to a screeching halt,” said David Hollingworth, associate director at broker L&C Mortgages.
How borrowers are affected
About 1.6 million existing borrowers were on relatively cheap fixed-rate contracts expiring this year. Hundreds of thousands of potential first-time buyers are hoping to secure their own home with their first mortgage. Everyone would support low mortgage rates.
The interest rate on a fixed mortgage does not change until the transaction expires, usually after two or five years, and a new mortgage is chosen to replace it.
Someone who got a mortgage a year ago and could offer a 40% deposit faced an average interest rate on a two-year fixed contract of 6.16%.
However, by October this year the average rate had fallen to 4.84%, according to financial information service Moneyfacts.
This reduction is the result of competition between lenders and the fact that the Bank of England made its first cut in its benchmark interest rate in four years in July.
As a result, property buyer demand, sales and the number of newly listed homes increased in September, according to the latest report from the Royal Institution of Chartered Surveyors (RICS).
However, housing experts predict that some lenders could now start raising their mortgage rates, perhaps as early as next week.
Some lenders, as the Barclays announcement shows, could raise rates on some deals, while cutting them on others.
So-called swap rates, which influence the price of fixed-rate mortgage transactions, have increased in recent days.
“It reminds us that things can change,” Mr Hollingworth said.
“This is not cause for panic, but those who have been tempted to wait for a rate cut might consider striking a deal in case we see further increases. If expectations ease again, it is always possible to review the rates.”
Impact on tenants
Mortgage customers and home seekers will hope that any increase in mortgage rates will be small and short-lived.
Analysts say the rise in swap rates could have been caused by a number of reasons, including potential announcements in the next Budget, comments from Bank of England policymakers on the direction of rates and international tensions.
However, generally speaking, the medium-term direction of interest rates is expected to remain downward.
Meanwhile, those hoping to become first-time buyers will face a triple whammy if mortgage rates start to rise again, house prices rise and rents become more expensive.
Some landlords' fears about stricter tax rules in the budget, as well as better tenant protections, have led some to sell, according to Rics. Fewer homes for rent could mean higher costs for tenants.
“Demand constantly exceeds supply,” said Rics president Tina Paillet.
“While the Tenants’ Rights Bill aims to improve standards and provide better protections for tenants, we must ensure that these reforms do not discourage responsible landlords from remaining in the market.
Ways to Make Your Mortgage More Affordable
Make overpayments. If you still have time to qualify for a low fixed rate deal, you may be able to pay more now to save later. Opt for an interest-only mortgage. This can keep your monthly payments affordable, even if you won't pay off the debt you accumulated when you purchased your home. Extend the term of your mortgage. The typical term for a mortgage is 25 years, but terms of 30 and even 40 years are now available.
Learn more here.
