Why Are Mortgage Rates Rising?
It’s no secret that lenders are removing mortgage deals and increasing rates. Many of our clients are asking why?
The most recent volatility is predominantly due to the upward movement in gilt yields, which are used by lenders to price mortgages.
The increases in gilt yields push SONIA swaps higher, leading to rising rates.
Gilts are government bonds, and Sonia is the Sterling Overnight Index Average, which is the interest rate that banks use to lend money to each other overnight. When the cost of borrowing money goes up, mortgage lenders have to pass those costs on to borrowers in the form of higher mortgage rates.
In recent months, the Bank of England has raised interest rates several times in an attempt to control inflation. This has led to a rise in the cost of Gilts and Sonia, which has in turn led to higher mortgage rates.
As a result of rising mortgage rates, some mortgage lenders have been removing products from the market or increasing rates on existing products. This is because they are no longer able to offer mortgages at the same rates that they were previously offering.
The uncertainty surrounding future interest rate rises is also making it difficult for mortgage lenders to make long-term commitments. This is why some lenders are choosing to remove products from the market altogether, rather than risk offering mortgages at rates that they may not be able to sustain in the future.
In short, the rising cost of borrowing money is one of the main reasons why mortgage lenders are removing products and increasing rates. This is likely to continue in the near future, as the Bank of England continues to raise interest rates in an attempt to control inflation.
So what’s next for the market?
Although the latest increase in rates will spook buyers and sellers alike, we are still seeing some lenders offering competitive rates and showing flexibility in their lending criteria.