Major banks have begun raising mortgage rates in response to renewed economic uncertainty.
Starting tomorrow, Santander will increase the rates aimed at home buyers and remortgages by up to 0.34 percentage points on some products.
It is also increasing fixed mortgages for those buying new-build homes by up to 0.2 percentage points and increasing fixed rates on fixed buy-to-let deals by up to 0.15 percentage points.
Currently, Santander offers five-year fixed rates starting at 4.14 percent and two-year fixed rates starting at 4.2 percent.
Someone with an interest rate of 4.14 per cent on a £200,000 mortgage that still has 25 years left will pay £1,111 a month.
Santander’s best rates will likely come from a higher base starting tomorrow as they are close to leading the market.
Up again: Mortgage lenders are starting to raise rates in response to renewed economic uncertainty
Justin Moy, managing director of EHF Mortgages, told news agency Newspage: ‘This departure from Santander was inevitable.
‘With swap rates rising and most lenders operating on tight margins, they have no choice but to increase fixed rates.
“Any hope for a tariff war has clearly been dashed, and the government has ruled out that opportunity.”
HSBC is also raising rates on its fixed-rate mortgages aimed at homebuyers, those remortgaging and buy-to-let homeowners.
This will almost certainly also result in the removal of some of the best rates on the market, although HSBC will not reveal its changes until tomorrow.
HSBC customers have until tonight to secure their market-leading two-year 4.2 per cent fix for those buying with a deposit of 40 per cent or more. People remortgaging will also likely see HSBC’s two-year 4.26 per cent solution disappear.
Buy-to-let landlords looking to buy or remortgage properties will also see some of the best rates disappear overnight.
HSBC currently offers a five-year fixed rate buy-to-let deal at 4.06 per cent with a product fee of £3,999 for those remortgaging at 75 per cent loan-to-value or 3.96 per cent. for those able to manage a 60 percent loan. -to-value.
A rate of 3.96 per cent on a £200,000 interest-only mortgage would equate to monthly payments of £660.
In addition to HSBC and Santander, TSB and Leeds Building Society have also announced rate hikes today.
Ken James, director of Contractor Mortgage Services, said: ‘The direction of travel is definitely up for mortgage rates.
‘Faced with a growing storm of bad economic news and extreme market volatility, lenders are beginning to batten down the hatches and hunker down.
“We were hoping for a promising start to 2025, but it just hasn’t materialized.”
Why are mortgage rates rising?
This week, the cost of government borrowing soared to its highest level in more than a quarter of a century, partly driven by a global bond sell-off and Labor chancellor Rachel Reeves’ budget plan to borrow and spend more, while that increases taxes on companies. .
Having been on an upward trend since early December, the 30-year bond yield hit the highest level since 1998, while the 10-year bond yield hit the highest level since the financial crisis.
While they have fallen slightly in the last two days, this has had knock-on effects throughout the money markets and Sonia swap rates have also increased.
Sonia swap rates reflect lenders’ expectations about future interest rates and play a critical role in pricing fixed-rate mortgages.
Swaps have been rising over the past month, but fixed-rate mortgages, in general, have yet to follow suit, until today.
A month ago, five-year swaps were at 3.8 percent and two-year swaps were at 4 percent.
But today five-year swaps have increased to 4.17 percent and two-year swaps are at 4.29 percent.
During that time, the lowest fixed rate mortgages have not increased, meaning that the lowest fixed rate mortgages are currently below their equivalent swaps, something that is incredibly rare.
Nicholas Mendes, mortgage technical director at John Charcol, believes there is no reason to panic and hopes the spate of rate hikes is simply a blip.
He said: ‘Overall, there has been a significant increase in swaps for lenders to continue to maintain pricing to the extent they have and these recent increases among senior lenders are essential to safeguard their margins and service levels.
“This does not mean we are looking at a difficult period of continued increases and I am confident that if markets remain firm we should see a reversal in today’s rate hike warnings.”
Simon Gammon, managing partner at Knight Frank Finance, is a little less optimistic.
He said: ‘Clearly, lenders think the start of 2025 will be another period of slow activity in the property market.
‘As things stand, this is probably true. Some large lenders have said they would increase the cost of some mortgage products.
‘That will likely prompt others to follow, which will be disappointing for anyone looking to buy or remortgage a home in the coming months.
“That said, fairly positive inflation data from both the UK and US this week has calmed bond markets, suggesting we will see a rapid revaluation, rather than weeks of sustained increases in mortgage rates.”
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