It’s a confusing time in the financial world – interest rates have been cut, yet mortgage costs continue to rise. If you’re wondering why this is happening, let’s break it down.

The Base Rate Cut

On 7 November, the Bank of England reduced the base rate from 5% to 4.75%. The base rate directly influences borrowing costs for individuals, businesses, and the government. However, this reduction was widely expected, and lenders had already factored it into their calculations.

Why Aren’t Mortgage Rates Following?

Despite the base rate cut, mortgage rates are rising, with the average two-year fixed deal now at 5.5%. This is due to:

• Inflation Pressure – Inflation remains a key concern. When inflation rises, lenders become cautious and adjust rates to manage risk, making borrowing more expensive.
• Swap Rates – Swap rates, which reflect the cost lenders pay to borrow money to fund mortgages, have been increasing. This is because financial markets are now predicting that future rate cuts will happen more slowly than previously anticipated.
• Economic Uncertainty – Global events, including the UK budget announcement and the US election, are influencing market confidence. This uncertainty is causing lenders to price their mortgage products more conservatively.

What Does This Mean for Borrowers?

While it might seem frustrating that mortgage rates aren’t reflecting the base rate cut, this trend highlights the complexities of the financial market. If you’re considering a mortgage, it’s essential to seek professional advice to navigate this challenging environment.

At Oakwood Independent Mortgage Consultants, we’re here to help you understand your options and find the best solution tailored to your needs. Contact us today for expert guidance in an ever-changing market.

Phone: 01202 587 555

Email: dean@oakwoodimc.com