Mortgage rate rises from five of Britain’s biggest high-street lenders have added to pressure on borrowers, with NatWest, Santander, HSBC, Lloyds Bank and TSB all announcing increases ahead of the Bank of England’s next interest rate decision on Thursday.
The latest repricing comes as markets assess the outlook for inflation and borrowing costs. Economists now believe there could be five increases in the Bank’s base rate between now and the end of next year.
Santander is making some of the largest changes, raising selected two-year fixed rates by up to 0.45 percentage points and five-year fixes by up to 0.4 percentage points from tomorrow.
Aaron Strutt, of mortgage broker Trinity Financial, said it was unusual for so many major lenders to increase rates at the same time.
“I can’t remember the last time five of the big six lenders hiked their rates on the same day,” he said.
Mr Strutt said Santander’s changes appeared to remove the last of its fixed-rate mortgages below 5 per cent, noting that the bank had offered a two-year fix at 4.52 per cent only a few days earlier.
Barclays has also increased its market-leading two-year fix, priced at 4.55 per cent with an £899 product fee, to 4.75 per cent. The lender had raised its fixed rates just days ago.
HSBC’s cheapest two-year fix now stands at 4.79 per cent, while its lowest five-year fix is 4.75 per cent. Mr Strutt said the bank’s changes were relatively modest compared with some other lenders, with slightly cheaper rates available to Premier customers.
Several building societies have also repriced mortgages for the second time this week. Nationwide has increased selected fixed rates by as much as 0.3 percentage points.
Mortgage rate rises add to refinancing costs
Since the start of March, the average two-year fixed mortgage rate has climbed by 0.89 percentage points, according to Moneyfacts.
For a £250,000 mortgage repaid over 25 years, the increase would typically add £131 to monthly payments, or £1,572 a year.
The Bank of England estimates that 750,000 households with fixed rates below 3 per cent are due to come to the end of their deals in 2026. Many are currently paying between 1 and 2 per cent and could now face fixing at around 5 per cent.
A borrower with a £250,000 repayment mortgage over 25 years would pay about £1,462 a month at a 5 per cent rate. That is £462 more than the monthly payment at 1.5 per cent.
Mortgage pricing could rise further after a sharp increase in Sonia swap rates, which reflect market expectations for future interest rates and are influenced by the wider economy, bank targets and competing lenders.
Five-year swaps reached 4.78 per cent, up from 4.28 per cent a month earlier, while two-year swaps rose to 4.7 per cent from 4.17 per cent.
The increase has been linked to market concerns about the effect of higher oil prices on future inflation and interest rates. Rachel Springall, a finance expert at Moneyfacts, said it was “highly likely” that more lenders would adjust their mortgage pricing.
“The mortgage pain shows no sign of easing for those borrowers who cannot yet lock into a new deal, particularly those with a five-year fixed who are not due to refinance until 2027,” she said.
“Back in February 2022, there were sub-2 per cent fixed mortgages available, so moving off this rate will be a huge shock for borrowers.”
Bank of England decision looms
The Bank has held its base rate at 3.75 per cent for five consecutive meetings since December last year. At its most recent vote on July 30, seven members of the Monetary Policy Committee supported keeping rates unchanged, while two backed a 0.25 percentage point increase to 4 per cent.
Most economists expect the Bank to hold rates again this week, followed by a 0.25 percentage point rise in November. There is also speculation that four of the five policy decisions between February and July 2027 could bring further increases.
Together, five rises would add 1.25 percentage points to the base rate. Ms Springall said there was also a possibility of an unexpected increase this week, which could push fixed mortgage rates higher still.
“This will be hugely disappointing news for borrowers,” she said. “It demonstrates how fixed mortgage rates are not intrinsically linked to adjustments to the Bank of England base rate, yet mortgage rates could climb even higher if the MPC decide to increase the base rate.”
