Homeowners have been warned not to expect mortgage rates to come down “any time soon” despite the Bank of England’s latest no-change decision.
Mortgage rates have been rising in recent weeks ahead of the Bank’s vote as renewed inflation fears are stoked by fighting between the US and Iran after peace talks broke down.
More than 30 lenders have hiked rates in recent weeks, with the average new deal rising 0.16 percentage points over the last fortnight, from 5.43% to 5.59%, according to Moneyfacts.
Adam French, head of consumer finance at Moneyfactscompare.co.uk, said: “The recent hikes follow solidifying market expectations that the next couple of moves in the base rate will be up not down.
“The ongoing conflict in the Middle East is fuelling fears that higher oil prices will persist, drive up inflation and force the Monetary Policy Committee (MPC) to hike rates in the months ahead.”
He cautioned that the split vote on the Bank’s rate-setting committee and its signals that increases might be needed to calm building inflation could see more mortgage lenders hike their rates in response.
He said: “It remains to be seen whether the slightly more hawkish tone struck by the Bank of England’s MPC fires the starting gun on a fresh wave of mortgage rate hikes.
“Unless the economic backdrop improves significantly, borrowers should not expect mortgage rates to fall much any time soon.”
The recent 0.16 percentage point increase in new mortgage rates has added around £230 extra a year for someone borrowing £200,000 over a 25-year term, Moneyfacts calculations reveal.
Financial markets are pencilling in one or two rate rises from the Bank before the end of 2026, though many economists think rates may remain on hold at 3.75%.
Mr French advises borrowers taking out a mortgage in the next six months to consider securing a deal early to avoid any further rate rises, with most able to switch if a cheaper deal becomes available before completion.
While the economic climate may squeeze homeowners and first-time buyers, it has been delivering a welcome boost to savers.
The average new savings rate has reached its highest for over a year, at 3.59%, while fixed savings deals are at a two-year high, at close to 5%, Moneyfacts data shows.
Alice Haine, head of personal finance at Hargreaves Lansdown, said: “Savings rates have been gradually drifting lower since peaking in the autumn of 2023, but with inflation easing to 2.6% in June, savers can still secure inflation-busting returns of up to 5% on both easy-access and fixed options.
“This is why anyone with money languishing in an account paying a meagre rate of 1% or less would be wise to explore more competitive options for their money.”
