The recent mortgage rate war seems to have ended as swap rates rose above 4% this week.
According to Chatham Financial, the two-year swap rate was 4.06% as of 7 October, while the five-year swap rate was 3.81%.
These were both higher than respective rates of 3.91% and 3.56% in September.
Swap rates can determine the direction of mortgage rates, as they indicate what lenders pay to financial institutions to acquire fixed funding for a set period of time.
Following this slight increase, Coventry Building Society announced a number of mortgage rate increases, which will come into effect at 8pm tomorrow.
The mutual told brokers it would be raising rates across all fixed rates at 65-75% loan to value (LTV) for new borrowers, excluding offset products, as well as all two- and five-year fixed remortgage rates at 80% LTV.
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Coventry Building Society will also remove the availability of cashback on all new business fixed rates for first-time buyers from 65% to 80% LTV.
Additionally, all fixed rates for existing borrowers at 65-75% LTV will be increased, except for offset deals.
There will be no change to the mutual’s buy-to-let (BTL) rates.
What’s next for mortgage rates?
David Hollingworth, associate director at L&C Mortgages, said: “The mortgage market has seen rates falling in recent months, but that may be coming to an abrupt halt. Fixed rate pricing depends on what the market anticipates may happen to interest rates and uncertainty over the forthcoming budget; mixed messages from the Bank of England and global unrest [are] pushing costs back up for lenders.
“Swap rates are a good indicator of the direction of fixed rate pricing, and they have bounced back up. If that persists, fixed rate improvements will be brought to an abrupt halt and edge back up.”
Hollingworth said Co-operative Bank had also announced it would pull some of its cheapest rates on Thursday, adding: “Other specialist lenders have also started to adjust rates upwards in recent days.”
“Borrowers may have been lulled into a false sense of security with round after round of rate improvements, but this is a reminder that things can change. This isn’t a cause for panic, but those that have been tempted to wait for lower rates may want to consider locking into a deal in case we see further increases.
“If expectation eases again, it’s still possible to review rates,” Hollingworth said.
Just last week, swap rates fell following comments from Andrew Bailey, governor of the Bank of England, who said the central bank could be “more aggressive” in its rate-cutting cycle.
This sentiment was quickly contradicted by Monetary Policy Committee (MPC) member Huw Pill, who said the August base rate cut – which was the first reduction in over four years – had happened too early.
Nick Mendes, mortgage technical manager at John Charcol, said it may be too soon to suggest any significant increases in mortgage pricing.
He said: “In recent days, several factors have unsettled market expectations, leading to an increase in gilt yields and swap rates. This could start impacting the mortgage market, especially as lenders adjust to these shifting conditions.
“However, it’s still early, and markets might be reacting prematurely.”
Mendes added: “Andrew Bailey’s recent comments, hinting at expectations for larger or more frequent rate cuts, were encouraging, though we have since had conflicting views among MPC members, [signalling] potential caution in future voting behaviour.
“Geopolitical tensions, particularly concerns over the Middle East conflict and its potential impact on oil prices, had further fuelled market volatility.”
“Any increase in mortgage rates, however, is expected to be temporary and may not reflect the long-term trajectory of rates over the next 12 months,” Mendes said.