Mortgage rate warning as more price rises expected – and what to do now

Mortgage rates are set to rise in the coming days, experts say, as homeowners are warned to lock in deals now. Higher inflation projections and geopolitical tensions have led to more pessimistic forecasts for the Bank of England (BoE) interest rate, which currently sits at 3.75 per cent. Swap rates – which are based on long-term forecasts for the BoE’s rate and have a heavy influence on mortgage costs – have started to climb, and experts say mortgage rates will follow. Some banks have already begun rate hikes, with the Co-Operative Bank announcing that all fixed rates will increase from this weekend, with Virgin Money also upping some rates by up to 0.3 percentage points. Shorts As a result, brokers say that those with mortgages set to expire later in the year should look to lock in as cheap a rate as possible now. This way, if rates are hiked, they are protected when they come to remortgage. Mortgage rates started to rise in spring after the start of the war between Iran and the United States sent oil prices upwards, and had a knock-on effect on inflation forecasts. Oil prices have fallen since May, as worst-case scenarios for the war did not come to pass, and with this, mortgage rates have gently slid down too. But they are now creeping back upwards. Average two-year rates are at 5.59 per cent, compared to 5.47 per cent in July, according to Moneyfacts, and experts say further rises are to come. What will happen to rates and why? Mortgage brokers said they were predicting that some high street banks will likely increase rates in the coming days. “With the increase in swap rates, it’s likely rates from mortgage lenders will increase. In fact, we have started to see these lenders start to increase already,” said Elliott Culley, director at Switch Mortgage Finance. Aaron Strutt, product and communications director at brokerage Trinity Financial, said: “Two and five-year swap rates have risen sharply over the last few days as renewed geopolitical tensions, higher energy prices and inflation concerns have unsettled financial markets. “So far, major high-street mortgage lenders have not changed their rates, but some of the smaller lenders have. However, if swap rates remain at their current levels, we expect lenders to start increasing at least some of their fixed-rate deals.” The BoE tends to up its base rate if inflation does not look on track to get down to its 2 per cent target level. Interest rates are currently 3.75 per cent and inflation is 2.9 per cent, but economists expect both to go higher. Pantheon Macroeconomics, a forecaster that until recently expected interest rates to stay at 3.75 per cent until the end of 2027, said in a briefing this week: “We now expect the [Bank of England] to hike Bank Rate in February, with a decent chance of a November or December 2026 hike instead if the Federal Reserve [the US central bank] moves this year.” It projects inflation to hit 3.9 per cent around the turn of the year. Explaining its reasoning, it said: “Natural gas prices have rocketed as competition for winter supply kicks in. The risk of gas prices surging in late summer was one factor that had led us to argue that risks were skewed to rate hikes. Gas prices will rise much higher if Middle East flows fail to resume.” If you’re on a fixed mortgage rate, your price is secured until the fixed period ends, at which point you will have to secure a new rate. There are other types of mortgage that are less common, but are affected differently. Tracker rates only move when the BoE base rate goes up, so they will be unaffected for now. Variable rates generally follow the BoE’s base rate, but can go up or down at different times depending on decisions from individual lenders. What can you do? Mortgage experts say that, generally speaking, the best way to protect yourselves from price hikes is to lock in a deal well before yours ends. Borrowers can generally lock in a new mortgage rate several months before their current deal ends, with experts suggesting getting in touch with a broker six months prior. Strutt explains: “If rates subsequently fall before completion, our brokers can check whether a cheaper product becomes available. “The mortgage market remains sensitive to movements in swap rates, inflation expectations and geopolitical events. Borrowers should therefore avoid assuming today’s cheapest fixed rates will still be available tomorrow or in a few days’ time.”