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Lenders see the end of cheap two-year fixes as swap rates increase

Mortgage lenders are expecting an end to short-term fixedrate deals due to the rising costs they are facing to borrow money.

Platform head of marketing Paul Hunt questions how long lenders can continue offering cheap two-year fixes and predicts that recent swap rate rises are a precursor to an imminent interest rate rise.

Swap rates for a two-year fix are approaching 5.5 per cent and have been creeping up since they hit the 5 per cent mark in June compared with below 4 per cent in July 2003.

Many commentators exp-ect bank base rate to rise to 5 per cent in the next few months. The last increase came in August, when the rate went from 4.5 to 4.75 per cent.

Hunt says: “The swap rate rises indicate that the Bank of England base rate will go up to 5 per cent and maybe even another rise after that. This means two-year fixed-rate deals will become expensive for lenders. The market is still demanding fixed rates but how long can that continue? Will trackers become more attractive now?”

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