MILLIONS of homeowners have been dealt a fresh blow after five major lenders hiked their mortgage rates within hours of each other on Monday morning.
Barclays, Santander, Skipton, TSB and the Nottingham Building Society all announced increases, with many rising by around 0.15 percentage points.
It comes just days after brokers warned that Brits were “days away from wholesale increases” in mortgage rates.
The turmoil was sparked when the yield on 30-year government bonds, known as gilts, surged to 5.91% on Wednesday, easily eclipsing the market chaos triggered by Liz Truss‘s disastrous Mini-Budget, when yields peaked at just above 5.1%.
Ten-year borrowing costs also climbed as high as 5.29 per cent, their steepest level since the 2008 financial crisis.
A gilt is essentially an IOU issued by the Government, and its yield reflects the return investors demand to lend money to the UK.
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The higher the yield, the higher the cost of borrowing.
While fixed mortgage rates aren’t directly set by the Bank of England‘s base rate, they are heavily influenced by movements in financial markets, particularly so-called swap rates, which tend to follow gilt yields and mirror where the market thinks interest rates are heading next.
Swap rates also dictate how much it costs lenders themselves to borrow the money they then lend on to mortgage customers, meaning any spike quickly feeds through to the deals on offer.
Exactly how far mortgage rates will increase remains uncertain because each lender prices its products differently.
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But, brokers say the trend is now clearly upwards and the latest Moneyfacts data reflects this shift.
On Monday, the average two-year fixed mortgage rate rose to 5.63%, from 5.60% on Friday, reaching its highest level since August 10.
The average five-year fixed rate also increased to 5.68%, its highest since May 11.
Nicholas Mendes, mortgage technical manager at broker John Charcol, said: “HSBC and NatWest have already increased rates since the start of September, while Santander, TSB and Skipton have also announced increases across parts of their ranges.
“What is notable now is not one lender making an isolated move, but a growing number beginning to reprice in the same direction.”
According to Mendes, lenders are largely “catching up” with earlier changes in the wholesale market.
Two-year swap rates are now around 4.27%, while five-year swaps stand at about 4.37% – both roughly 0.20 percentage points higher than a month ago.
He said that the market was “still functioning normally” and that conditions were “nothing like the rush of product withdrawals seen during previous periods of volatility”.
However, he warned that further targeted increases were likely if swap rates remained at their current levels.
Even a modest rise can significantly affect household finances.
Rachel Springall, a finance expert at moneyfactscompare.co.uk, said a 0.25 percentage point increase on a typical two-year fixed mortgage could add about £38 to monthly repayments, or £456 a year.
This is based on borrowing £250,000 over 25 years, with the rate rising from 5.63% to 5.88%.
How to keep YOUR costs down
Many lenders allow homeowners to secure a new fixed-rate deal up to six months before their current mortgage ends.
Mendes said those approaching this window should focus on locking in a deal rather than trying to predict whether rates will fall.
If cheaper products become available before the new mortgage begins, the deal can often be reviewed or changed.
Buyers should also be prepared to act quickly.
Mendes said that an agreement in principle – an initial indication of how much a lender may be willing to offer – does not secure a particular mortgage rate.
Buyers should therefore have their finances fully assessed and be ready to submit a complete mortgage application as soon as an offer on a property is accepted.
Those who have already secured a mortgage product should not panic, he added.
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Lenders’ rate increases normally apply only to new applications, rather than deals that have already been reserved, provided the mortgage offer remains valid and the purchase proceeds as planned.
Anyone unsure of their options are being urged to speak to a mortgage broker as soon as possible, rather than risk missing out on today’s rates.