Mortgage rates are rising despite a cut in interest - and a drop in savings rates - leaving homeowners looking for a fixed deal struggling.

Average rate on a two-year fixed deal are now hovering around 5.5% - not what customers might expect after an interest rate decrease.

Lenders such as Barclays, HSBC, NatWest and Nationwide have upped their rates for new fixed deals in recent days.

Global events, and domestic announcements such as the Budget, mean that for many, borrowing costs in general have increased.

Peter Stimson, Head of Product at MPowered Mortgages, says: "Nearly two weeks on from the Bank of England’s decision to reduce its Base Rate, many lenders’ mortgage interest rates are heading in the opposite direction.

"At first glance this is an absolute headscratcher, as conventional wisdom says that interest rates - both for savers and borrowers - follow the Bank of England’s lead.

"While that is true, the past couple of months have seen some highly unusual behaviour by several mortgage lenders which means they’re not yet able to reduce the rates they offer to new borrowers and re-mortgagers."

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This is partly down to the swaps market, essentially the wholesale cost of the fixed-rate money that lenders lend out to their customers. 

Swap rates are a reflection of the market’s long-term view on the cost of borrowing, so the Bank of England’s Base Rate reduction earlier this month had likely already been anticipated and priced in by the markets.

"Swap rates have been rising since mid-September, yet in October many lenders held or even reduced the interest rates they offered to customers," says Peter.

"In other words, competition between lenders was so fierce that some chose to slash their margins or sell mortgages at a potential loss just to win business. "Selling anything at such low margins can’t be sustained for long, so with swap rates inching up further in November many lenders have now had no choice but to put up their interest rates too."

Some tracker and variable rate mortgages move fairly closely in line with the Bank's base rate.  Around 1.4 million borrowers are on trackers, and should have felt a slight decrease after the Bank of England announcement, depending on their deals.

But more than eight in 10 mortgage customers have fixed-rate deals, around 7 million households. The rates on this kind of mortgage product doesn't change until the deal expires, usually after two, five or even 10 years.

“For now, the combination of rising swap rates and lenders’ intense price cutting in October means that, for now at least, rates are going the wrong way as lenders try to recover their positions," says Peter.

Each year, on average, 800,000 fixed-rate mortgages expire. Many of those finishing at the moment are at rates under three per cent.

Hundreds of thousands of potential first-time buyers also hope to get their first mortgage, and most of these will be fixed rate.

Danny Belton, head of lending at the Mortgage Advice Bureau, says: "Although rates have dropped significantly compared to last year, it’s only natural that homeowners might want to hold out for more possible cuts.

"However, with swap rates and interest rates not directly linked, this ‘wait and see’ approach could be costly in the long run. 

"Even if rates fall, this doesn’t necessarily mean mortgage rates will drop, as these have already been factored in by lenders. For first time buyers or those whose mortgage is coming to an end in the next few months, their best bet is to speak to a mortgage broker.

"They can access the most suitable deals for your financial circumstances and ensure you’re mortgage ready."