The average rate charged on a two-year fixed rate mortgage (across all LTVs) increased by 0.09% in one month, the fastest increase in the average rate since February 2012 when it rose by 0.13%, according to Moneyfacts.
The average two-year fixed rate increased on 14 (70%) of the 20 business days in April. It fell just three times (15%). Anyone applying for a two-year fixed on 1 April would have been offered an average rate of 3.52%, but by 30 April it would have risen to 3.61%, or an additional £290.88 over the term for a mortgage of £250,000.
At the same time, SWAP markets have been volatile, rising and falling weekly, in a response to continual speculation of when BoE base rate will rise.
Moneyfacts said the tight correlation between the two-year fixed rate and two-year SWAP rate suggests that there is little ability in the mortgage rates charged for the banks to absorb the increased cost to them of borrowing money.
Sylvia Waycot from Moneyfacts said: “It is a very different mortgage market to four months ago when the Government withdrew its controversial FLS, thereby cutting access to cheap money. Banks are facing scrutiny over balance sheets via stress tests and capital holding requirements, plus there are increased costs of regulation and processes such as MMR.
“The two-year fixed rate mortgage has been the favoured option for the risk-averse borrower who enjoys the knowledge that they know what their mortgage will cost each month. However, as these deals have come to an end, many borrowers have reverted to the SVR of their lender, as in many cases it has proved a cheaper alternative.”
