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Ten-year fixes start to rise from record low

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Lenders may have started adjusting their mortgage pricing over the last few weeks in anticipation of an earlier-than-expected interest rate rise by the Bank of England (BoE), according to Moneyfacts.

The average rate on a ten-year fixed rate mortgage has crept up to 3.05%, jumping from its record low of 2.96% seen at the start of February, though it is still below the 3.20% average a year ago.

The rise in average mortgage rates comes as industry insiders warned that product pricing is about to undergo “major” change in the coming weeks.

Rachel Springall, finance expert at Moneyfacts, said further rate changes were “unavoidable” because lenders will soon have to start pricing in fluctuations in long-term interest rates and to cope with the changing economy. For the time being, they are trying to retain competitiveness and variety in products to attract consumers looking for remortgaging or purchase.

Springall added that the end of the Term Funding Scheme (TFS) could also have a big influence on pricing.

“The cheap funds made available through government lending initiatives to mortgage providers will eventually dry up,” she said.

“There is a four-year window set in place for the last drawdown, so the clock is officially ticking on how long lenders can prolong the lowest rates,” she continued.

Safe haven

Borrowers may be looking to lock in the decade-long fixed deals to safeguard against the potentially multiple base rate rises this year, said Springall, though some might also turn to five-year fixes to give themselves more wriggle room and avoid hefty early-redemption charges (ERCs).

“In times of uncertainty, a decade-long fixed mortgage could be a safe-haven for borrowers looking to secure their mortgage payments over the longer-term,” said Springall.

She continued: “However, a decade-long fixed mortgage isn’t without its dangers, as borrowers need to feel pretty certain that their circumstances won’t change and that they will not need to amend their deal.

“Borrowers may instead turn to five-year fixed mortgages, where they will find cheaper rates and are tied in for shorter period.

“However, there is no telling what interest rates will be like in five years’ time, so some may prefer to lock into decade-long fixed deal for some peace of mind.”

The base rate currently sits at 0.5%, though economists have suggested that the next hike may come as early as May, given the stronger-than-expected forecasts for wage growth, inflation, and economic performance.

The next Monetary Policy Committee (MPC) meeting will take place on 22 March, followed by 10 May.

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