Cut in ‘swap rates’ hasn’t eased mortgage rates

08 July 2008

Cost of fixed-rate mortgages is still rising

Latest figures have shown that mortgage lenders are still increasing the cost of the fixed-rate home loans even though inter-bank lending rates have decreased slightly.

According to financial analyst Moneyfacts.co.uk, the average interest rate of a two-year fixed-rate mortgage has increased to 7.07% over the course of the past two weeks.

Fixed-rate mortgage interest rates increased originally because of dramatic increases in swap rates – the interest rates charged by banks when lending to each other – after it was thought that the Bank of England interest rates could increase as a result of inflationary pressures.

However, even though swap rates have decreased slightly, only a few lenders have cut the interest rates on their fixed-rate products.

“It is now three weeks since the peak in swap rates and we would expect to see the cost of fixed-rate deals starting to fall, but this isn’t the case. In fact the opposite is true, with rates continuing to rise,” said Darren Cook, mortgage expert at Moneyfacts.co.uk.

“It is an extremely worrying time for anyone coming to the end of a fixed-rate deal. Our two-, three- and five-year fixed-rate best buys are now entirely dominated by deals over 6%. This time last year, deals over 6% didn’t even make the best buys.

“There are still a handful of sub-6% deals, but these come with such high fees that any benefit from having the slightly lower rate is likely to be wiped out by the fee,” he added.

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