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Lenders hiked fixed rates ahead of BoE rise

Lenders had already priced in 72 per cent of the Bank of England’s base rate hike before the Monetary Policy Committee voted to increase the official rate, according to Moneyfacts.

The price comparison site says that lenders began pushing up the cost of fixed rate mortgage deals as soon as a rate rise was on the cards.

In August following the Bank of England’s base rate rise, there was little change in the average two-year fixed rate, which was up by just 0.01 per cent compared to the previous month at 2.53 per cent.

However, back in January the average rate stood at 2.35 per cent, 0.18 per cent lower than this month’s figure.

Moneyfacts finance expert Charlotte Nelson says: “This sizeable increase to the two-year fixed rate average clearly shows lenders had predicted that a rate rise was on the horizon since the start of the year.

“As a result, by the August announcement, 72 per cent of mortgage rates had already factored the 0.25 per cent rate rise into their two-year fixed mortgage rates during the first half of the year.

“Unlike in the run-up to the Bank of England’s rate increase in November 2017, the lead-up to this base rate rise saw the mortgage market lack activity, with rates and product numbers remaining relatively static.

“This is largely due to the significantly amount of activity in the mortgage market prior to the May announcement.”

Nelson adds: “Expectations of a base rate rise were high in May, with the vast majority of providers increasing their rates in anticipation and as a direct reaction to the much higher swap rates at the time.

“However, the subsequent lack of movement in base rate had little impact on the average two-year fixed rate.

“It seems that instead of reducing rates to their former levels, providers chose to wait and see if a base rate rise was likely.

“They did not have to wait long, but while the Bank of England has increased the rate, it appears that the static nature of the two-year fixed rate market is set to continue, with providers almost reaching an equilibrium.”

The Moneyfacts UK Mortgage Trends Treasury Report shows the average two-year tracker rate fell after the expected rate rise in May failed to materialise while in the lead-up to August’s announcement the rate rose slightly, increasing by 0.03 per cent to 1.95 per cent.


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  • Chris Hulme 13th August 2018 at 1:25 pm

    0.18% is hardly a “hike” and given most lenders January rates are to stimulate the start of the year, January isn’t really a comparable. Lenders also seem to be pricing against the activity levels in their processing departments rather than just to the market rates. On that basis I suspect much of the rate difference to be mostly processing and service lead and has much less to do with MPC than may be thought or indeed reported…