Several of the UK’s largest mortgage lenders have announced plans to hike their rates this week, as interest on home loans continues to move upwards.
Santander, NatWest, the Co-op Bank and Principality Building Society have all announced they will be increasing rates.
Most prominent is Santander, which currently offers the cheapest two-year fix (4.53 per cent) and second-cheapest five-year fix (4.17 per cent) on the market.
From tomorrow, it said a number of its fixed rates for purchase and remortgage customers would increase by between 0.06 and 0.43 percentage points.
Bad news: Lenders have been swift to reprice their mortgages this week
The bank’s fee-free two-year fixed rate deal for those buying with a 40 per cent deposit will go up from 4.77 per cent to 4.92 per cent.
On a £200,000 mortgage being repaid over 25 years, that would mean the difference between paying £1,143 and £1,160 a month.
This marks a considerable shift from the sub 4 per cent rates Santander was offering all but three weeks ago.
Santander also said all its residential tracker rates would rise by between 0.06 and 0.43 percentage points.
The rest of the rate rises, as well as a small number of rate reductions, will be announced tomorrow.
A few of its deals aimed at those with smaller deposits or levels of equity will be cut.
Santander is also cutting all of its buy-to-let fixed rates by between 0.09 and 0.23 percentage points, which will come as a boost to landlords.
Meanwhile, NatWest is increasing rates for existing customers looking to switch to a new NatWest mortgage. The increases will apply to both homeowners and landlords.
Halifax also announced today that a number of its fixed rates were increasing by up to 0.2 percentage points from Wednesday.
The Co-operative Bank for Intermediaries also announced a raft of rate changes, including its product switch fixed mortgages being increased by up to 0.72 percentage points.
Its buy-to-let product switch fixes are also increasing by up to 1.09 percentage points.
Speaking to the Newspage news agency, Justin Moy, managing director at EHF Mortgages said: ‘More disappointment in the mortgage market, with some big lenders increasing rates this week.
‘This is a bitter blow to borrowers, especially when we are rapidly moving towards the most important time of the year for buying and selling property.
‘Rates need to fall, and fall quickly, to rescue both the economy and property market.’
When might mortgage rates fall?
The changes announced today continue an upwards trend in mortgage rates since the start of February.
Only a month ago, the lowest five-year fixed rates were below 4 per cent and the lowest two-year fixes were just north of 4 per cent.
Rates have ticked up again because of a change in market expectations for the Bank of England’s base rate, which currently sits at 5.25 per cent.
The base rate is important because it determines the interest rate paid on the reserve balances held by commercial banks at the Bank of England.
By setting the base rate, the Bank of England is therefore able to steer short-term market interest rates.
Heading back up: Mortgage rates are rising again after almost six consecutive months of cuts
At the start of the year the market was pricing in six or seven cuts to base rate in 2024 alone.
Now, the market is expecting base rate to be cut about three times this year to around 4.5 per cent by December.
Looking further ahead, markets are currently only pricing in a base rate to fall to around 3.8 per cent by the end of 2025 before eventually reaching 3.5 per cent in 2027.
When base rate starts falling, this may trigger good signals to the industry meaning interest rates could fall further.
But it doesn’t necessarily mean there will be significant rate cuts across fixed rate products straight away due to the fact lower rates have already been priced in because there is already an expectation rates will fall.
For mortgage borrowers, these market expectations are reflected in Sonia swap rates.
In the simplest terms, swap rates show what lenders think the future holds concerning interest rates, and this governs their pricing.
As of today, five-year swaps were at 3.88 per cent and two-year swaps are at 4.49 per cent – both trending below the current base rate. The cheapest mortgage rates rarely ever go below swap rates.
Given that, it is likely swap rates will need to fall before mortgage lenders start re-pricing downwards in any meaningful way.
Rohit Kohli, director at The Mortgage Stop said: ‘It’s looking like lenders are thinking any cut in the base rate now won’t happen until later this year, which will worry the thousands of people who were hoping the Bank of England would take some form of action in the coming weeks as their fixed rates come to an end.’
Nicholas Mendes, mortgage technical manager at broker John Charcol, noted that five-year swaps have fallen from above 4 per cent to 3.87 per cent over the past two weeks, suggesting this could tempt some lenders to cut rates in the short term.
‘Five-year money has edged downwards in recent days which will see a positive reversal in pricing on five-year fixed rates over the next fortnight,’ he said.
‘The market needs some stimulation, however small. An 0.1 percentage point rate cut will provide enough confidence on future bank rate movement to price more favourably, though June looks likely to be when we do see the first rate cut.’
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