Bank Base RateBase rate warning could cause fixed rates to soar

Mortgage advisers expect fixed rates to increase by an average of 0.25 per cent over the coming weeks after the Bank of England’s base rate warning caused swap rates to soar.

Delivering his annual Mansion House speech on Thursday, Bank of England governor Mark Carney hinted base rate could rise “sooner than markets currently expect”.

Before his speech, market expectations were that the first increase would come in the first or second quarter of 2015 at the earliest.

But following Carney’s speech, swap rates – which lenders use to hedge potential interest rate increases and are closely linked to mortgage pricing – jumped to levels not seen in up to three years.

On Thursday, two-year swap rates stood at 1.2 per cent. But the next day they went up 15 basis points to 1.35 per cent and continued climbing yesterday to hit 1.38 per cent, the highest level they have been since May 2012.

Over the same time period, five-year swaps increased 11bps to 2.25 per cent, a level not seen since July 2011.

Mortgage advisers say swaps are likely to continue to rise now Carney has warned an increase in base rate is likely in the near future and that fixed rates could increase by up to 0.25 per cent, on average, over the next couple of weeks.

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