Mortgage lenders race to raise rates

More than 20 lenders have hiked their mortgage rates in the past month as fears of an imminent rise in the base rate grow, prompting experts to call time on record low- cost home loans.

Barclays, Halifax, digital bank Atom, NatWest and building societies Nationwide, Skipton and West Bromwich have all increased the cost of their mortgage deals in the past week.

And the average two-year fixed rate has bumped up 0.04 percentage points to 2.24 per cent since 1 October, according to data from Moneyfacts. 

Homework: check your papers to find out if you can remortgage now before rates rise

It comes off the back of a sharp uptick in swap rates – the interest rates many mortgage lenders pay to borrow money at in order to lend it out to homeowners.

As a result, lenders that rely on money markets to fund new mortgages are being forced to factor in their own higher costs. 

Charlotte Nelson, finance expert at Moneyfacts, said: ‘The higher inflation figure announced on 12 September, coupled with the Bank of England stepping up its interest rate warnings, gave a clear indication to markets that a base rate rise is likely in the near future. 

Lenders that rely on money markets are being forced to factor in their own higher costs

Lenders that rely on money markets are being forced to factor in their own higher costs

‘This acted as a catalyst for swap rates to rise, with the two-year swap rate increasing from 0.54 per cent to 0.82 per cent in just one month.’

In the past few years, the link between mortgage rates and swap rates appeared to be broken, not only due to the volatility of the rates but also the fierce competition among lenders in the mortgage market. 

Nelson said: ‘Providers are now starting to factor swap rate rises into their pricing, causing the average two-year fixed rate to start creeping up, and this new trend is showing no signs of abating yet. 

‘With rates having sat at record lows, it is difficult for providers to swallow the increased cost by any means other than increasing the rates on offer. 

‘As a result, lenders are now treading a fine line between needing to remain competitive to protect their mortgage book and absorbing the cost of higher swap rates.’

At the moment, it’s still possible to secure a two-year fixed rate from Yorkshire Building Society for 0.99 per cent, while tracker and discount rates are available from as little as 0.89 per cent. 

However, when the bigger banks start to raise their rates it can trigger a surge in demand for loans from more competitive smaller lenders, which are then forced to hike their rates to stem the flood of applications.

mortgage rates

Nelson added: ‘This means it is crunch time for borrowers looking to remortgage; it is vital they act fast to ensure they get the best possible deal before their rates increase.’

For an in-depth look at what is on the cards for mortgage rates, read our regularly updated analysis here.