Fixed rate mortgage rates expected to rise

Just when news filters through that there may be small signs the housing market may settle and start the road to recovery homeowners are facing interest rates hikes of fixed rate mortgage deals for the first time in a year.

Homeowners are typically going for fixed rate deals at the moment and this type of mortgage is going to see the rise in rates.  The Nationwide has announced that it raising its whole range of fixed rate mortgages and this will be an average of 0.2%, but in some cases the rate hike will be up to 0.86%.  The increase is blamed on the steep increases of swap rates which set the tone for fixed rate mortgage deals.

John Charcoals’ senior technical manager Ray Boulger, said: “Nationwide are a big enough lender to cause a general increase in fixed rates. I think it is highly likely we will see other lenders put their rates up in the near future.

“The reason Nationwide have put their rates up is partly because of a sharp rise in swap rates, but I think they are also looking to reduce the amount of lending they do in the short-term.”

Swap rates are borrowing rates set between the banks. Two-year fixed-rate mortgages are based upon two year swap rates, which have risen from 1.98% on May 14 to 2.48% on June 8, but there has been a slight easing in that rate. There was also a steep increase in three and five-year swap rates since May 14, rising by 0.62% to a level of 3.11% and 3.76% respectively on June 8.  Finally 10-year swap rates have increased by 0.44% to 4.24% between May 14 and June 8.

It is widely expected that over the next few days many mainstream lenders will be reviewing their fixed rate mortgage deals and increasing their rates accordingly.

A potential concern is that according to the Bank of England negative equity is now affecting between 700,000 and 1.1 million homeowners.  This is not good news for those seeking the stability of a fixed rate deal that are now not only facing difficulty locating a good LTV deal, but the cost of the product is rising sharply as well.

There are good fixed rate deals out there at the moment but if the trend is continued increases then that may have a major impact in the overall recovery of the housing market.