Mortgage rates edged up again this week, with Moneyfacts reporting the average two-year fixed rate climbing to 5.6% and the five-year fixed rate nudging to 5.64%. The driver behind this subtle increase is a rise in swap rates, which are a key component in lenders’ cost of funds. Swap rates have surged recently due to ongoing market uncertainty around Bank of England policy and global economic pressures, feeding through to mortgage pricing.
For property investors, even a 1bp rise in fixed rates can have a tangible impact on monthly outgoings, especially for larger loan amounts. Our data shows that the average mortgage size for UK investors is around £200,000, so a 0.01% increase in rates translates to roughly £17 extra per year in interest. While this may seem modest, the cumulative effect of multiple small hikes can erode yield margins on rental properties.
Looking ahead, Moneyfacts and other analysts anticipate further rate increases as swap rates remain elevated. Investors should factor in the potential for rising borrowing costs when modelling cash flow and consider locking in fixed rates sooner rather than later. Given the current volatility, a cautious approach to gearing appears prudent, with stress testing against higher interest rate scenarios becoming increasingly important.
Source: Mortgage Strategy
