NatWest has become the latest major lender to increase its mortgage rates.
On Tuesday (October 15), the high street bank said most of its two-year and five-year fixed and tracker rate mortgage range would increase by 0.3 per cent. In addition to this, the rate on its flagship five-year deal for borrowers making a purchase with a deposit of at least 40 per cent will go back up above the 4 per cent mark, rising from 3.79 per cent to 4.09 per cent.
The rate on the five-year fix for borrowers with a 25 per cent mortgage goes up from 3.89 per cent to 4.19 per cent.
Some tracker rates are also going up with a two-year deal for purchasers with a 40 per cent deposit increasing from 5.61 per cent to 5.91 per cent.
Santander has also axed some of their cheapest fixed-rate deals in a warning sign that rising gilt yields may be now feeding through to the price of home loans.
Last week, Santander said it was “temporarily” shelving eight residential and remortgage deals, all for five-year fixed terms.
The sudden U-turn after months of falling rates comes amid a sharp rise in yields on gilts that are used to price fixed-rate deals. The benchmark ten-year gild was today trading at a yield of 4.242 per cent, up about half a percentage point since mid-September. The bond markets have been increasingly fretful about a big increase in borrowing in the Budget over recent weeks that could potentially increase the risk that investors will not get paid back.
It is a blow for the property market, which had finally started to gather momentum as market mortgage rates started to subside, particularly as sub-4 per cent rates became increasingly widely available.
However, the Bank of England is still expected to cut its headline lending rate from 5 per cent to 4.75 per cent when its Monetary Policy Committee meets in November.
Which mortgage rates have increased?
As well as Santander and Natwest, a number of other lenders have started to err on the side of caution.
Coventry Building Society has already announced that many of its fixed-rate deals will increase along with several specialist lenders such as Aldermore.
Currently, two and five-year fixed rates are available for below 4 per cent. The best deal is a five-year fix with Coventry Building Society at 3.69 per cent.
Brokers have reportedly been informed by some smaller lenders, including Bank of Ireland and Kensington Mortgages, that they are also pulling deals this week.
Aaron Strutt of Trinity Financial said: “Lenders are normally pretty slow to put rates down but quick to increase them with funding costs change.”
Why have mortgage rates gone up?
Spooked lenders are concerned about what’s about to come after worrying messages of “tough decisions” coming from Labour.
Mortgage borrowing rates have been falling for months as swap rates – the main pricing mechanism for fixed mortgages – have also dropped. However, growing concerns ahead of the Autumn Budget alongside fears of sticky inflation, slow interest rate cuts and global tensions have pushed up borrowing costs.
David Hollingworth, associate director at L&C Mortgages said: “The mortgage market has seen rates falling in recent months but that may be coming to an abrupt halt. Fixed-rate pricing depends on what the market anticipates may happen to interest rates and uncertainty over the forthcoming Budget, mixed messages from the Bank of England and global unrest [are] pushing costs back up for lenders.
“Swap rates are a good indicator of the direction of fixed-rate pricing and they have bounced back up. If that persists, fixed-rate improvements will be brought to an abrupt halt and edge back up.”
When could they be brought down?
It is all a guessing game, and depends on what is announced at the Budget and at the next Bank meeting in November.
The Bank of England did keep interest rates on hold at 5 per cent in September, but a further cut is expected later in the year. The previous rate of 5.25 per cent was the highest level for 16 years.
Inflation is now far below the peak of 11.1 per cent in October 2022. The main inflation measure, CPI, rose slightly to 2.2 per cent in the year to July 2024 and remained at the same level in August. It means prices are rising at a much slower rate than in 2022 and 2023.
However, many analysts expect the Bank to cut rates at its next meeting on November 7.
Although UK inflation briefly hit the Bank's 2 per cent target in May and June 2024, it is forecast to remain slightly above that level for the rest of the year, before settling back down in early 2025.
In May, the International Monetary Fund (IMF) - which advise members on how to improve their economies - recommended that UK interest rates should fall to 3.5 per cent by the end of 2025.
But in its latest forecast in July, the IMF warned that persistent inflation in countries including the UK and the US might mean interest rates have to stay "higher for even longer".
