Santander and TSB improve mortgage charges

Mortgage rates could be edging higher again, as Santander and TSB will be increasing the interest on some of their fixed deals. 

Santander, which temporarily withdrew a number of its mortgage deals on Friday has confirmed that they will return with higher interest rates. 

From tomorrow the bank will be increasing some fixed rates by up to 0.22 percentage points.

Hikes: Santander and TSB have announced plans to increase some of their mortgage rates

Also from tomorrow, TSB will increase mortgage rates on five-year fixed deals aimed at first-time buyers and home movers by up to 0.25 percentage points. 

Two-year fixes will also increase by up 0.1 percentage points.

For homeowners remortgaging, TSB is upping rates on five-year deals by up to 0.25 percentage points.

Up until last week, mortgage rates had been dropping. Between the start of July and the end of last week, the cheapest available five-year fixed rate mortgage fell from 4.28 per cent to 3.68 per cent.

Meanwhile, the lowest two-year fix fell from 4.68 per cent to 3.84 per cent during that time.

But as of this week, the lowest five-year fix is now 3.79 per cent and the lowest two-year fix is 3.99 per cent.

Why are mortgage rates rising? 

Mortgage lenders consider several things when setting their fixed mortgage rates, from borrower demand to general economic sentiment and their own margins. 

Swap rates are the easiest way to interpret where fixed rates may be heading. 

Sonia swap rates are an inter-bank lending rate which essentially show what lenders think the future holds concerning interest rates.

When Sonia swaps rise sufficiently it often results in fixed mortgage rates going up, and vice versa when they fall.

In recent weeks Sonia swaps have been ticking upwards again. As of 10 October, two year swaps were at 4.03 per cent and five-year swaps were at 3.79 per cent.

That marks a rise compared to a month ago when two-year swaps were at 3.74 per cent and five-year swaps were at 3.38 per cent.

It is rare for the lowest fixed mortgage rates to fall below the equivalent Sonia swap rates.

Chris Sykes, technical director at mortgage broker Private Finance says he wouldn’t be surprised to see a few more lenders increase rates over the coming weeks.

‘The margins lenders are making on rates has now been paper thin for the last few weeks and it is no surprise that these margins cannot be maintained by lenders, hence us seeing some reversals and slight rate increases,’ said Sykes.

‘It isn’t panic stations, rates haven’t all shot up –  just some of the market leading rates have increased slightly, so it takes us back in time to where rates were about a month ago, not to where they were four months ago.

‘I can’t see rates reducing much more, unless there is a larger than 0.25 per cent reduction in base in the November MPC meeting, or if there is some really positive economic data that influences sonia swaps greatly.

‘In the short term swaps have been increasing so I wouldn’t be surprised if we witness a few more rate increases, but it should only be 0.1-0.2 per cent, which shouldn’t be enough to change a transaction.’