Fixed Rate  

Lenders pre-empted rate rise in fixed deals

Lenders pre-empted rate rise in fixed deals

The recent increase in the base interest rate was already factored into the majority of fixed rate deals, according to research by Moneyfacts.

The firm's data showed two-year fixed rates were already on the rise before the Bank of England’s announcement earlier this month, with the average product having risen 0.18 per cent since January 2018.

In January the average rate for a two-year fix stood at 2.35 per cent but this has since increased to 2.53 per cent.

Moneyfacts found by the time of the Bank of England's announcement on 2 May, lenders had already factored in 72 per cent of the 0.25 per cent rate rise, from 0.5 per cent to 0.75 per cent, into their two-year fixed rates.

Charlotte Nelson, finance expert at Moneyfacts, said many lenders were increasing their rates months before the base rate announcement.

She said: "This should be a stark warning for borrowers as mortgage rates have been on the rise without the need of a base rate increase by the Bank of England.

"Any borrower sitting on their standard variable rate or coming to the end of a deal should remortgage as soon as possible to ensure they get the most cost-effective product possible."

Between January and August, the average rate on a two-year tracker fell from 2.02 per cent to 1.95 per cent.

Since the base rate increase a succession of mortgage lenders have increased their rates to reflect the rise, including Nationwide, Coventry Building Society and Lloyds Banking Group.

David Hollingworth, associate director at L&C, said the fact mortgage rates had risen earlier was probably connected to the fact the market had expected a base rate increase in May, but this was postponed because of economic data.

He said: "Competitive pressure helps keep a lid on prices because lenders are trying to price as sharply as they can, so it does mean margins are narrow so market rates could be reflected more rapidly in mortgage rates."

damian.fantato@ft.com