Recent signs of a stabilisation in the British housing market may be short-lived if high street mortgage rates over the past week are anything to go by.
Some fixed mortgage rates have crept up as much as 30 basis points, in part as hawkish rhetoric from Bank of England policymakers has stoked speculation of an imminent hike in the base rate, currently at 4.75 per cent.
Mortgage lenders, including Halifax, Abbey and Northern Rock, have recently raised their fixed rates on the back of rises in the bond yields and swaps which they are priced off.
The rise comes despite the fact that the central bank has left base rates steady since August and is expected to leave them unchanged at its meeting later this week.
"This should help to cool the housing market further. We've recently seen a sharp rise in money market rates which feed through to mortgage rates," said James Carrick, economist at ABN AMRO in London.
"The Bank of England might not need to follow through with a rate hike... if the money market has already done the job for them," he said.
House prices remain a hot issue in Britain where more than two-thirds of households own their own homes.
Climbing house prices, which have on average doubled over the past five years, have helped to sustain a consumer boom that has only recently begun to falter.
Price rises have tailed off in recent months, with the two largest mortgage lenders, Halifax and the Nationwide Building Society, reporting month-on-month changes in February of a 0.5 per cent fall and a 0.5 per cent rise respectively.
Policymakers are making efforts to ensure the housing market is heading for a soft landing and will not take off again and raise the risk of an even sharper correction in the future.
Ten-year gilt yields have risen by almost 30 basis points since the end of last year and interest rates as implied by short sterling futures have also shot up as investors shifted expectations from a rate cut to a rate hike as early as May.
Mortgage lenders who recently came into swap markets to hedge against rising funding costs found the deals they could get were not as good as those a few months ago, and some of them passed on those costs to borrowers.
Halifax last week raised the fixed interest rate paid by its borrowers for the first two years of their mortgages by 30 basis points to 5.29 per cent from 4.99 per cent. Another leading mortgage lender, Abbey, raised its equivalent rate by 10 basis points to 4.99 per cent. Although fixed-rate loans account for only around 35 per cent of the British mortgage market by value, they are seen as a key indicator of long-term trends in interest rates.
But despite the increase, mortgage rates are still near record lows and analysts still say a gentle slowdown, not a crash, seems the most likely scenario for the market.
"Whether or not the Bank will raise interest rates, the rise in mortgage rates is a fait accompli for those seeking to borrow. That should dampen the housing market," said Richard McGuire at RBC Capital Markets.
"We are probably in line for a bit of stagnation at the moment and I expect further correction along the way. However, I don't see any trigger to cause sharp downward pressure that previously occured in the housing market crash of the 1990s."