Bank of England blamed for new risk of home loan rate rises

Mortgage brokers are warning that home loan interest rates could “edge up” after the Bank of England failed to cut the base rate last week.

So-called “Sonia swap rates”, which set the benchmark for lending between financial institutions, have risen slightly over the past week.

As a result, mortgage brokers are warning that the cost of new home loans is unlikely to see a repeat of recent falls and could even show some small increases.

Gabriel McKeown, Head of Macroeconomics at Sad Rabbit Investments, said: “A recent uptick in swap rates, a key indicator of lenders' borrowing costs, is likely to translate into a modest increase in mortgage rates across the board or, at the very least, a pause in rate reductions.

“The path to lower rates is unlikely to be smooth, and while the long-term trend suggests improving affordability, the potential for short-term rate increases means that delaying decisions in hopes of significantly lower rates could be a risky strategy.”

Darryl Dhoffer, of The Mortgage Expert, said: “In the wake of Threadneedle Street holding interest rates at a formidable 5 percent, Sonia Swaps, which fixed-rate mortgages are priced off, rose. And lenders have been relatively quiet after months of continuous cuts.

“This is not good news for those burdened with mortgages. Lenders, ever ravenous for profit, will undoubtedly pass on these increased costs, tightening the noose around the necks of borrowers.

“The dream of lower mortgage rates may, for now, be over. The 8-1 vote in favour of maintaining the base rate casts a shadow over the prospect of future rate reductions. Until the elusive 2 percent inflation target is consistently met, the Bank of England will remain steadfast in its stance.”

Craig Fish, Director at Lodestone Mortgages & Protection, told Newspage, said all eyes will be on the October Budget and fears of continuing rhetoric promoting doom and gloom, which has hit consumer confidence.

He said: “We all remember how the wrong words rattled the markets in 2022, so let’s hope history doesn’t repeat itself. The decision-makers at Threadneedle Street are more likely to bring 'bah humbug' than Christmas cheer.

“The final quarter of 2024 might be far from merry, despite the festive décor. Buckle up for a potentially bumpy ride this winter."

Looking ahead, Managing Director at Whenthebanksaysno.co.uk, Emma Jones, said: “Rates will continue to drop marginally as we’ve seen already the past few weeks.

“However, I very much doubt there will be major reductions so for anyone sat on a standard variable rate waiting for that major drop, then I’d recommend considering taking advantage of the current offers available.”

Simon Bridgland, Director at Release Freedom, said: “With inflation keeping the base rate on hold again, I feel that we won’t see any other rate drops to get excited about until after October’s Budget. Fixed rates are likely to hold firm until markets react to Rachel Reeves doing her worst."

A more optimistic view came from Ben Perks, Managing Director at Orchard Financial Advisers, who said: "Have faith, rates will continue to fall. Unfortunately, they won't drop like a stone, but we'll see more of a gradual decline. But better times are ahead for borrowers even if we have to wait a little longer for that next cut to the base rate."