Bank of England puts interest rates up

This, the tenth rise in just 15 months, means the base rate is now 4%, some 3.75% greater than it was in December 2021. Does that mean mortgage rates are going up too? Apparently not, in fact they might continue to fall.

Over the past few weeks, mortgage lenders continued to cut their interest rates, with more deals falling close to 4 per cent despite the predicted base rate hike.

Yesterday (01 February), high street lender Virgin Money launched an exclusive five-year fixed mortgage with a 4.17 per cent rate, cutting the product's previous rate by 0.11 percentage points.

The bank also launched a 10-year fix at 3.99 per cent yesterday (31 January), which joined Halifax's 10-year fix at the same rate.
But unlike Halifax's product, which is just for those looking to remortgage, Virgin Money's 3.99 per cent is also available for those purchasing their first or second home.

During the course of January, mortgage interest rates continued to fall - with many brokers anticipating 4 per cent two and five-year deals in just a matter of weeks.

The average five-year fix has fallen by 0.43 percentage points, while the average two-year fix has fallen by 0.34 percentage points, according to Moneyfacts.

Other high street lenders to cut their rates this week include NatWest, which shaved off up to 0.24 percentage points, as well as HSBC and TSB's lesser 0.15 percentage point cuts.

Sales manager at mortgage broker MB Associates, Phil Leivesley believes that, despite the rise, it is plausible that the cost of fixed rates will continue to reduce.

"Lenders appear to be cutting their margins in a bid to compete with each other and bring in business," he explained,

"Whilst it’s perhaps too soon to talk about a ‘price war’, we can expect lenders to continue to want to capture market share."

Some brokers have already signalled a price war among lenders, as more high street names edge close to 4 per cent deals.

"Tracker rates will of course rise with any base rate increases, but I’m not convinced borrowers already on, or taking out, tracker products will have much to worry about as I don’t expect to see too many more increases to the base rate after Thursday, if at all," said Leivesley.

Tracker rates, unlike fixed rates, follow the base rate - meaning they can go up and down in line with changes to the base rate.

Brokers have told FTAdviser they have been recommending tracker rates due to the falling rate environment and uncertainty around when rates might stabilise. 

"My anticipation is that lenders will retain the margin above base rate in their tracker products as the base rate increases. Whilst the gap between tracker and fixed rate products is closing, tracker rates are going to remain a tempting option for less risk averse borrowers," Leivesley concluded.

Source - FT Adviser