Mortgage rates are on the rise again, leaving lenders cautious as the winter approaches. After a series of drops in mortgage interest rates, the situation has taken a slight turn for the worse for new and renewing borrowers over the last month, according to Moneyfacts. The average rate for a two or five-year fixed-rate mortgage now stands at around 5%, which is significantly lower than the peak of recent years but still a challenge for many homeowners. Analysts predict that the Bank of England is unlikely to cut base rates anytime soon, and the uncertainty surrounding the upcoming budget adds to the mix. Moneyfacts data reveals that mortgage rates have only increased slightly over the month, by 0.02 percentage points. This means the average two-year deal now carries a rate of 4.98%, while the average five-year mortgage has a rate of 5.02%. The majority of mortgage customers have fixed-rate deals, which means their interest rates remain stable until the deal ends, typically after two or five years. With hundreds of thousands of first-time buyers hoping to secure their own place, low mortgage rates are highly desirable. However, Rachel Springall from Moneyfacts warns that the current situation might be disappointing for borrowers. She explains that volatile swap rates and lenders' cautious approach have led to a halt in the consecutive monthly average rate drops. Swap rates indicate the market's prediction of the Bank of England's interest rate direction, which lenders use to set their rates. Simon Gammon, a managing partner at Knight Frank Finance, notes that lenders have responded cautiously, with some increasing rates and the overall average ticking up slightly. He reassures that this is unlikely to signify a sustained rise in borrowing costs, but rather a temporary plateau while the outlook becomes clearer. It's worth noting that the current rates are much lower than they were two years ago, when the average two-year deal had a rate of 6.67%. Homeowners who became accustomed to lower rates during the 2010s will now need to adjust their budgets for higher monthly repayments, alongside other financial pressures like rising food costs. The government has committed to supporting people with the cost of living, and the budget, to be delivered by Chancellor Rachel Reeves in November, will play a crucial role in this regard. Ms. Springall advises borrowers to consider their individual circumstances and seek guidance when needed. She emphasizes the importance of independent advice to navigate the mortgage maze and avoid feeling pressured to secure a deal based on budget rumors. The Institute for Fiscal Studies, an independent economic think-tank, has also weighed in, suggesting that the chancellor should avoid 'directionless tinkering and half-baked fixes' when trying to boost the government's tax take in the budget.
