A number of lenders raised mortgage rates this week, amid uncertainty over the pace of future interest rate cuts by the Bank of England (BoE).
The Bank of England has cut interest rates from 4.5% to 4.25% in early May, marking its fourth reduction since rates peaked at 5.25% last year.
However, concerns over economic growth and inflation due to US president Donald Trump’s tariff agenda has raised questions as to whether central banks will delay cutting rates.
Discussing the impact of the tariffs on policymaking at a cross-party Treasury select committee session on Tuesday, BoE governor Andrew Bailey said that while the interest rate “path remains downwards, but how far and how quickly is now shrouded in a lot more uncertainty, frankly.”
Some of the major lenders raised their mortgage rates this week for first-time buyers, as the market moves away from the mini price war that pushed deals deep into under-4% territory.
In fact, the average rate for a two-year fixed mortgage deal stood at 4.89% this week, which only down slightly from 4.9% last week, according to data from Uswitch. Meanwhile, the average five-year fixed deal rate fell to 5.09%, from 5.24% last week.
Data released by the BoE earlier this week showed that the number of mortgages approved by UK lenders for home purchases fell more than anticipated in April as the end of a tax break on stamp duty cooled demand.
Read more: Average UK house price falls in May after stamp duty changes
In addition, the latest Halifax house price index, published on Friday, showed that UK house prices dipped 0.4% in May, representing a fall of nearly £1,150. The average UK property is now valued at £296,648, down from £297,781 in April, when house prices rose for the first time this year.
Commenting on the Halifax data, Paul Dales, chief UK economist at Capital Economics, said: “The fall back in house prices on the Halifax measure in May increases the chances that more of the recent soft patch in the housing market is due to the subdued economy than the temporary effects of changes in stamp duty.”
Dales said: “Recent leading indicators suggest that the market will remain soft in the coming months”. He noted that Royal Institution of Chartered Surveyors (RICS) survey measure of new buyer enquiries, as well as mortgage approvals were yet to rebound.
“This may suggest that the recent falls in employment and the failure of mortgage rates to do much more than move sideways over the past six months, rather than reverse much of their previous rises, is holding back demand even after the temporary effects of stamp duty changes are fading,” he said.
