Mortgage payers may soon find themselves facing higher bills despite a recent cut in interest rates by the Bank of England (BoE). Several lenders have decided to increase their mortgage rates, citing the anticipated rise in inflation following the government’s budget announcement. This move comes as hundreds of mortgage offers have been withdrawn from the market.
The Bank of England had announced a decrease in interest rates, bringing it down to 4.75 per cent against a backdrop of 1.7 per cent inflation (below the targeted 2 per cent inflation rate). However, the impact of swap rates, which are used by lenders to determine fixed-rate mortgage prices based on future interest rate predictions, has contributed to the increase in mortgage rates.
On average, a two-year fixed mortgage rate has risen to 5.44 per cent this week from 5.39 per cent prior to the Bank of England’s interest rate cut. Hina Bhudia from Knight Frank Finance noted that a significant lender’s decision to raise rates often leads to a broader shift in mortgage pricing, with announcements of rate hikes becoming more frequent.
Nicholas Mendes, mortgage technical manager at John Charcol, explained that while some lenders have maintained their rates to retain business volumes and service standards, others offering competitive rates have been compelled to adjust due to high application levels. Additionally, the increase in swap rates has further necessitated these adjustments, making it challenging for borrowers to navigate the current market landscape.
Several banks have already raised their mortgage rates, including Barclays, Coventry Building Society, HSBC, Nationwide, Santander, TSB, and Virgin Money. For example, Nationwide increased its five-year fixed-rate deal from 3.94% to 4.14%, while Coventry Building Society has stopped accepting new applications from borrowers.
A spokesman from Nationwide acknowledged the impact of the current swap rate environment on their fixed-rate range adjustments, emphasizing the need to remain competitive in the market to support all borrowers. Despite the rate hikes, some lenders are still offering reductions on tracker rates to align with the recent bank rate decision.
Overall, the outlook for mortgage rates remains uncertain, with market dynamics and rising swap rates influencing lenders’ decisions to adjust their pricing. Borrowers are advised to stay informed about the changing landscape and explore all available options to find the most suitable mortgage deal in the current market conditions.
