Mortgage rates creep back up as lenders show caution

Average mortgage rates have risen for the first time month-on-month since February as lenders approach the winter with caution.

Following a series of drops in mortgage interest rates, the picture worsened slightly for new and renewing borrowers over the last month, according to financial information service Moneyfacts.

The average rate for a two, or five, year fixed rate stands at about 5%, much lower than the peak of recent years, but still a stretch for many homeowners.

Analysts suggest imminent, further base rate cuts by the Bank of England appear unlikely, and uncertainty always foreshadows a Budget.

Moneyfacts data shows that mortgage rates only climbed very slightly over the month, by 0.02 percentage points.

That took the rate on an average two-year deal to 4.98%, and to 5.02% for the average five-year mortgage.

More than eight in 10 mortgage customers have fixed-rate deals. The interest rate on this kind of mortgage does not change until the deal expires, usually after two or five years, and a new one is chosen to replace it.

Hundreds of thousands of potential first-time buyers also hope to get a place of their own with their first mortgage. All would welcome low mortgage rates.

Rachel Springall, from Moneyfacts, said that the latest situation might well “disappoint” borrowers.

“Volatile swap rates and a cautionary approach among lenders have led to an abrupt halt in consecutive monthly average rate falls,” she said.

Swap rates reflect the market’s view of which direction the Bank of England’s interest rates will go, so lenders use them to set their own rates.

“Lenders have responded cautiously, with some edging rates higher and the overall average ticking up slightly,” said Simon Gammon, managing partner at mortgage advisers Knight Frank Finance.

“This is unlikely to mark the start of a sustained rise in borrowing costs, but rather a prolonged plateau while the outlook becomes clearer.”

The rates during this October are much lower than this month two years ago, when the average rate for a two-year deal was 6.67%.

Some homeowners would have become accustomed to much lower rates during the 2010s, so will now be budgeting for bigger monthly repayments, alongside other financial pressures such as the rising cost of food.

The government has said it will support people with the cost of living. The Budget will be delivered by Chancellor Rachel Reeves in November.

Ms Springall, from Moneyfacts, said that borrowers should consider their own circumstances and seek guidance when required.

“It remains essential borrowers seek independent advice to navigate the mortgage maze and not feel pressured to secure a deal because of the Budget rumour mill,” she said.

On Monday, the Institute for Fiscal Studies, an independent economic think-tank, said that the chancellor should avoid “directionless tinkering and half-baked fixes” when trying to boost the government’s tax take in the Budget.