Base Rate Cut Hopes Fade

7th December 2024

An air of uncertainty hangs over what might happen to mortgage rates next. Despite a drop in the base rate of interest in November, the cost of fixed mortgage rates has surged higher following the concern that the base rate may not fall as fast as previously thought.

In the near term, hopes of a December rate cut look to have been dashed by several factors, including higher-than-expected inflation in October. This came on top of more expensive funding costs already being felt by mortgage lenders, due to the Autumn budget and the outcome of the US election.

"Markets are being cautious and that's having a knock on to lenders, something which many mortgage seekers might be finding counterintuitive," Danni Hewson, head of financial analysis at investment platform AJ Bell, told NerdWallet UK. "In the days after the base rate cut many lenders actually increased their fixed rates as money markets priced in just two, or at the outside three, quarter percent cuts to the base rate next year."

Fixed mortgage rates see large rises
Every major mortgage lender, and many others, raised the cost of at least some of their fixed-rate mortgages in the past month. Some hiked rates more than once.

As a result, the best five-year fixed-rate mortgage available stood at 4.14% on 21 November, notably higher than the market-leading rate of 3.84% on offer at the start of the month. The lowest available two-year fixed rate leapt from 3.96% to 4.22% over the same period.

What may seem strange is that the biggest increases came shortly after the Bank of England lowered the base rate of interest for the second time this year, from 5% to 4.75%.

In the week following the announcement on 7 November, the average five-year fixed mortgage rate jumped from 4.70% to 4.83%, while a similarly sharp rise was seen on average two-year rates, from 4.95% to 5.07%. By some distance, both were the largest week-on-week increases seen over either term this year.

Read more at nerdwallet HERE