Rates rise on UK mortgages as lenders look to fallout from inflation

Mortgage lenders raised rates on a wide range of home loans this week, in the latest sign of expectations of inflation-induced rate hikes to come from the Bank of England.

Santander, NatWest, TSB, Royal Bank of Scotland, Virgin Money, Yorkshire Building Society, Accord and the Co-operative Bank were among lenders to raise mortgage rates by up to 0.6 percentage points on a selection of residential loans.

Santander has added up to 0.5 percentage points to interest rates on a number of its mortgages, leaving its cheapest two-year fixed rate loan for those with a 25% deposit at 1, 89%, with a fee of £999. The Yorkshire Building Society has raised rates across its range by up to 0.63 percentage points.

Aaron Strutt, product manager at mortgage broker Trinity Financial, said lenders were “looking forward to further rises in base rates” but were also facing strong demand for buy-to-let and mortgage loans. as movers and borrowers tried to lock in low rates.

Strutt said: “A lot of people are worried about what will happen to their mortgage as rates go up. Lenders are also incredibly busy, so some of them are trying to reduce the number of applications they receive while catching up on the backlog.

The Bank of England raised its main interest rate in December from 0.1% to 0.25% and earlier this month from 0.25% to 0.5% — the first consecutive hikes since 2004. Markets expect the Bank to work to rein in inflation, which hit 5.5% in January, to lead to further hikes this year.

According to financial website Moneyfacts, average mortgage rates on two-year fixed-rate transactions for all loan-to-value ratios have fallen from 2.44% to 2.61% since early February.

Eleanor Williams, finance expert at Moneyfacts, said: “There have been a variety of updates from mortgage lenders recently, fueling the rise in the majority of average fixed rates as providers revise their ranges. of products and a number are withdrawing selected offers from the market.”

Mortgage brokers said borrowers looking to lock in a rate should reevaluate the quiet approach many have taken in recent years of ultra-low interest rates. Mark Harris, managing director of SPF Private Clients, said when lenders compete on rates, people can afford to wait. Now the upward movement in rates was forcing them to take action before lenders made deals and replaced them with more expensive options.

“I would say the low in rates has been and gone. It forces people to make a decision,” he said.

Housing market activity remains buoyant, with property website Rightmove reporting this week that strong demand for London homes in February and a shortage of inventory were driving up asking prices.

Brokers said purchase demand as well as mortgage transactions remained high after a surge in activity last year. On Friday, the Leeds Building Society announced its busiest year for mortgage applications in 2021, with gross loans hitting a record £4.4billion.

But some brokers said lenders may rethink how they assess borrower affordability as pressure mounts on household finances amid a cost-of-living crisis. Energy bills are rising rapidly, while rail fares and national insurance contributions are expected to rise over the next two months.

Nicholas Mendes, technical director of mortgages at brokerage John Charcol, said: “With many lenders, affordability is based on income rather than cost of living considerations. But, as costs continue to rise, we may see lenders err on the side of caution and start considering other factors to ensure the mortgage remains affordable.

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