Mortgages rise as hopes of summer rate cuts are dashed

An aerial view of the residential properties in London

Mortgages are going up as higher than expected inflation figures cast doubt over the likelihood the Bank of England will cut interest rates before the summer.

Coventry Building Society is raising all of its fixed rates on its residential mortgages for new and existing customers from April 18, it has announced. Similarly, Principality Building Society is increasing its fixed rates for customers buying a property by up to 0.21pc.

Consumer price inflation fell to 3.2pc in March, down from 3.4pc in February, dashing hopes of a 3.1pc drop. Traders think the Bank of England will now cut interest rates just once this year.

Money markets indicate the Bank of England could wait as late as November before it begins to reduce borrowing costs.

Swap rates – the main pricing mechanism for fixed rate mortgages – have been slowly increasing over the past week after US inflation proved stickier than expected and the European Central Bank voted to hold rates. As a result, experts say mortgage lenders will be reviewing the margins on their current rates and may push up prices in order to insure they make a return on the money they loan out.

Over the past month the two-year swap rate has risen from 4.55pc to 4.77pc, while the five-year rate has risen from 3.99pc to 4.23pc.

For those needing to remortgage or trying to get a foot on the housing ladder, the news will be disappointing as many expected to see rates continue to fall over the coming months.

More than 1.5 million homeowners are due to reach the end of fixed-rate mortgage deals throughout 2024, with many being forced to refinance at rates that are double what they are used to.

Nicholas Mendes of mortgage broker John Charcol said: “Initial forecasts of a 3.5pc fixed mortgage rate by August to late September are very unlikely, with any sign of such a deal now pushed back to later in the year.

“Rates haven’t fallen as quickly as many anticipated following the early-year enthusiasm among lenders. While mortgage rates have declined from last year’s highs, many mortgage holders undoubtedly hoped for a more substantial reduction by now.”

Higher mortgage rates also threaten to dampen the housing market, although so far property prices have held up better than expected.

Average UK house prices fell by 0.2pc in the 12 months to February, slowing from a decrease of 1.3pc in the 12 months to January, according to data from the Office for National Statistics (ONS) published this morning.

Across the UK, the average house price was £281,000.

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