Nikka Sulton

Mortgage borrowers are being encouraged to secure fixed-rate deals sooner rather than later as rising bond yields put fresh pressure on mortgage pricing.

Financial markets have become more unsettled following renewed tensions between Iran and the US, raising concerns about inflation and energy costs. This has pushed up swap rates, which lenders use when setting the prices of fixed-rate mortgages.

The increase could mean borrowers who are approaching a remortgage or planning to take out a new mortgage face higher rates if lenders begin repricing their products.

Swap Rates Point to Higher Mortgage Costs

The UK’s 10-year gilt yield has climbed to its highest level since 2008, contributing to a wider rise in borrowing costs.

The two-year overnight swap rate, which had been around 4.3% on Friday, climbed as high as 4.49% on Wednesday morning before easing back to 4.43%.

Five-year swap rates also moved higher, briefly reaching 4.53%, their highest level in three years.

Mortgage brokers are warning that lenders could respond by increasing their fixed-rate products, even though there has not yet been a significant change in the Bank of England’s base rate.

Aaron Strutt, product director at Trinity Financial, said the rise in swap rates was a worrying development and that fixed mortgage rates were expected to increase as lenders adjusted their pricing.

Borrowers Could Benefit From Acting Early

Some competitive mortgage deals could disappear if lenders begin increasing their rates.

Nationwide, for example, was offering two-year fixed mortgages at 4.48% and five-year fixes at 4.5%. However, brokers warned that these rates may not remain available if market conditions continue to deteriorate.

Online mortgage lender Gen H has already announced that it would increase its mortgage rates by 0.2 percentage points.

The move illustrates how quickly lenders can respond when wholesale funding costs increase.

Adrian Anderson, managing director of mortgage broker Anderson Harris, said his team was contacting clients who were approaching the end of their existing fixed-rate periods.

Rather than waiting for conditions to become clearer, borrowers were being advised to bring forward their remortgage decisions and secure a rate where possible.

Why Swap Rates Matter

Swap rates are closely watched by mortgage lenders because they influence the cost of providing fixed-rate borrowing.

When swap rates rise sharply, lenders can take a little time to adjust their mortgage products. However, once one major lender changes its pricing, competitors often follow.

This means borrowers can sometimes benefit from securing a deal before a wider round of repricing takes place.

For anyone preparing to remortgage, this could mean getting paperwork ready sooner. Mortgage brokers may ask borrowers to provide documents such as payslips, bank statements and other financial information before submitting an application.

For larger mortgages, the potential difference can be particularly significant.

One broker was already preparing an application for a client looking to remortgage £1.3 million, highlighting the importance of acting quickly when rates are moving.

Geopolitical Events Continue to Affect Mortgage Markets

The latest rise in borrowing costs shows how sensitive the mortgage market has become to global events.

Lucian Cook, director of residential research at Savills, said mortgage markets have become increasingly responsive to changes in expectations around geopolitical developments, inflation and interest rates since the outbreak of the Ukraine war in 2022.

This means mortgage pricing can now react quickly to events outside the UK.

Concerns about higher energy prices are particularly important because a sustained increase in energy costs could put additional upward pressure on inflation. If inflation proves harder to control, financial markets may adjust their expectations for interest rates, which can feed through into mortgage pricing.

Housing Market Recovery Could Face Another Setback

Higher mortgage rates could also make it harder for the UK housing market to build momentum during the autumn.

The market has already experienced a relatively slow summer, with buyers showing greater caution when deciding whether to purchase a property.

Mortgage approvals fell to 56,100 in July, according to the figures cited in the report. This was 15% lower than the same month a year earlier and 13% below the 10-year average.

The decline suggests that some potential buyers are still reluctant to commit to a purchase while borrowing costs remain elevated.

Net mortgage borrowing also fell sharply, dropping to £4.3 billion in July from £7.7 billion in June.

These figures point towards a market where affordability and confidence remain major concerns.

What Higher Mortgage Rates Could Mean for the Autumn Market

A further increase in mortgage costs could make the housing market even more cautious.

Buyers who are already stretching their budgets may find that higher monthly repayments make some properties unaffordable. Others may decide to delay their purchase until mortgage rates become more stable.

This could reduce the number of transactions and place additional pressure on sellers to price properties competitively.

For landlords and property investors, higher mortgage costs could also affect investment decisions, particularly for those refinancing existing buy-to-let mortgages or looking to expand their portfolios.

The impact will depend on how long higher swap rates persist and whether lenders pass the full increase through to borrowers.

Should Borrowers Fix Their Mortgage Rate Now?

There is no guarantee that mortgage rates will continue rising, and borrowers should consider their individual circumstances before making a decision.

However, those who are approaching a remortgage date may want to speak to a broker early rather than waiting until their current deal expires.

Securing a mortgage rate in advance can provide greater certainty and may protect a borrower from further increases before the new deal begins.

Borrowers should also compare the overall cost of each mortgage rather than focusing solely on the headline interest rate. Arrangement fees, early repayment charges and other conditions can affect the real cost of a deal.

Mortgage Rates Remain Sensitive to Market Volatility

The latest movements in swap rates demonstrate how quickly mortgage pricing can change when financial markets become unsettled.

With concerns over inflation, energy prices and geopolitical tensions still influencing market expectations, borrowers could face further volatility in fixed-rate mortgage pricing.

For homeowners approaching the end of a fixed deal, the message from brokers is therefore clear: don’t leave the decision until the last minute.

While there is no certainty that rates will rise further, getting organised early gives borrowers more options and could allow them to secure a competitive deal before lenders reprice their products.