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Mortgage market slows ahead of base rate announcement

This week could see the Bank of England further increase the base rate from its current level of 0.75%, and although a hike is not certain, the market has already begun to react.

According to, the highly anticipated base rate announcement happening this Thursday (10th May), has begun to slow the mortgage market. Indications that another rise is on the way are rife, as mortgage ranges have stagnated due to lender uncertainty over the past few weeks.

The market is already reflecting the speculation of a rate rise with the average two-year fixed rate seeing a massive increase in March, leaping from 0.08% to 2.51%. This is the largest increase in this rate since November last year, which notably is also when the base rate was last increased.

According to Charlotte Nelson, finance expert at Moneyfacts: “With the money markets already pricing in this increase, providers had little choice but to follow suit and do the same with their [two-year] fixed rates.”

Lenders try to remain competitive

However, a rise in rates is still uncertain following Bank of England governor Mark Carney’s recent speech, where he stated that uncertainty over the UK leaving the EU could delay a rate rise. According to Charlotte, the speech, “coupled with lower than expected inflation, slow manufacturing growth, a fall in the pound and a slowdown in consumer borrowing, has caused the LIBOR and SWAP rate markets to fall in recent weeks”.

Providers have been slow to respond to the falling LIBOR and SWAP rates, and have largely kept their product ranges unchanged despite their own falling costs, likely due to speculation over the 10th May announcement.

However, unlike the increase in the two-year fixed rate, five-year fixed rates have remained unchanged. This is perhaps a direct result of having to increase two-year fixed rates, to maintain a competitive edge to attract borrowers seeking longer-term deals for protection against future rate rises.

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