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New regulations and volatile rates force mortgage costs up
A combination of volatile swap rates and the arrival of the Mortgage Market Review regulations have caused mortgage rates to increase at the fastest level in more than two years.
Research from Moneyfacts showed the average two-year fixed rate across all LTVs increased by 0.09% in April, the biggest monthly rise since February 2012.
Of the 20 business days in April the average LTV increased on 14, with the average rate rising from 3.52% at the start of the month to 3.61% at the end. This rise would mean borrowers pay an extra £290.88 over the term for a mortgage of £250,000.
The cost of the Mortgage Market Review implementation on April 26 and uncertainty in the swap markets were the main reasons behind the increase, Moneyfacts said.
Despite no move in the Bank of England base rate, markets were beginning to speculate about when this change will happen.
Moneyfacts editor Sylvia Waycot said: “It is a very different mortgage market to four months ago when the government withdrew its controversial FLS, thereby cutting access to cheap money. Banks are facing scrutiny over balance sheets via stress tests and capital holding requirements, plus there are increased costs of regulation and processes such as MMR.
“The two-year fixed rate mortgage has been the favoured option for the risk-averse borrower who enjoys the knowledge that they know what their mortgage will cost each month. However, as these deals have come to an end, many borrowers have reverted to the SVR of their lender, as in many cases it has proved a cheaper alternative.
“However, the average two-year fixed rate increased fourteen of the twenty business days in April and the average five-year fixed rates have fared no better, increasing 14 out of 20 working days in April.
“Don’t make the mistake of thinking that we need a change to base rate to increase the cost of mortgages, as prices are creeping upwards now. So if fixed rates are your preference, now is the time to fix.”