Mortgage choice remains strong despite inflation uncertainty

Mortgage product availability has caught the attention of many in the last week. The trigger for this was the May inflation report which confirmed that inflation in the UK remains higher than expected. This in turn changed expectations around the Bank of England’s upcoming decisions on bank base rate.

How does this impact on mortgage product availability?

The events of last autumn brought the term ‘swap rates’ into the public consciousness. In the case of mortgages, swap rates are used by lenders to acquire funding for a set period of time - usually two, three, or five years, which is used for fixed-term mortgage deals.

Swap rates are based on what the market thinks interest rates will be in the future. The change in bank base rate expectations meant that swap rates increased sharply – by 0.7 per cent when comparing today’s two-year swap rate to that of 11 May (the last MPC date). As a consequence, many lenders have had to change the price of their fixed-rate deals. If swap rates move rapidly, as we saw in the Autumn, lenders may have to pause or withdraw products both to manage service, but also because surges in demand use up the funding set aside for the fixed-rate deals that are on offer.

Lenders want to continue lending

The mortgage market remains competitive. Latest Moneyfacts data shows that while there was a reduction in the number of residential fixed-rate products since 24 May to 3847, overall, there are still more products available than the 3411 before the 23 September mini budget and significantly more than the 1822 we saw in the week after the mini budget.

Clearly, mortgage rates have risen – with the average two-year rate at 5.75 per cent, although this is well below the highs of 6.65 per cent after the mini budget.

Product availability also remains strong across all LTV bands, meaning that borrowers have ample choice. Indeed, we have seen plenty of innovation in the market recently, which is testament to lenders’ commitment to supporting borrowers.

We know that both aspiring homeowners, and existing borrowers coming to the end of their fixed-rate deal might be worried about what this means for them. I would encourage them to seek advice from a whole-of-market broker to consider their options. If people are worried about paying their mortgages, I would urge them to contact their lender early. Lenders have a range of tailored support for borrowers and stand ready to help.

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