Four main mortgage lenders all improve charges on the similar time: Here’s why extra might observe…

Major banks have begun increasing mortgage rates in response to renewed economic uncertainty.

From tomorrow, Santander is upping rates aimed at home buyers and those remortgaging by up to 0.34 percentage points on some products.

It is also upping fixed mortgages on those purchasing new build homes by up to 0.2 percentage points and increasing fixed rates on  buy-to-let fixed deals by up to 0.15 percentage points.

At present, Santander offers five-year fixed rates starting from 4.14 per cent and two-year fixed rates starting from 4.2 per cent.

Someone with a 4.14 per cent rate on a £200,000 mortgage with 25 years still left to run will be paying £1,111 a month.

Santander’s best rates will likely be starting from a higher base as of tomorrow given they are close to market leading.

Justin Moy, managing director at EHF Mortgages told the news agency, Newspage: ‘This move from Santander was inevitable. 

‘With rising swap rates and most lenders operating on thin margins, they have little choice but to increase fixed rates. 

‘Any hopes of a rate war have clearly been dashed, with the government punting that opportunity out of the park.’

HSBC is also increasing rates across its fixed rate mortgages aimed at home buyers, those remortgaging and buy-to-let landlords.

This will also almost certainly result in the removal of some of the best rates on the market, albeit HSBC will not reveal its changes until tomorrow.

HSBC customers have until tonight to secure its market leading 4.2 per cent two-year fix for those buying with a 40 per cent deposit or more. People remortgaging will likely also see HSBC’s 4.26 per cent two-year fix disappear as well.

Buy-to-let landlords looking to buy or remortgage properties will also likely to see some of the best rates vanish overnight.

HSBC is currently offering a five-year fixed rate buy-to-let deal at 4.06 per cent with a £3,999 product fee those remortgaging at 75 per cent loan-to-value or 3.96 per cent for those able to manage 60 per cent loan-to-value.

A 3.96 per cent rate on a £200,000 interest only mortgage would equate to monthly payments of £660. 

Aside from HSBC and Santander, TSB and Leeds Building Society have also today announced rate hikes. 

Ken James, director at Contractor Mortgage Services, said: ‘The direction of travel is definitely upwards for mortgage rates. 

‘Faced with a growing storm of bad economic news and extreme market volatility, lenders are beginning to batten down the hatches and barricade themselves in. 

‘We had hoped for a promising start to 2025 but it simply hasn’t materialised.’

Why are mortgage rates rising? 

This week, the cost of government borrowing soared to its highest level for more than a quarter of a century, partly triggered by a global bond sell-off and Labour Chancellor Rachel Reeves’ Budget plan to borrow and spend more, while raising tax on business.

Having been on an upward trend since early December, the yield on 30-year gilts reached the highest it has been since 1998, while, the yield on 10-year gilts hit the highest level since the financial crisis.

While they have fallen slightly over the past two days, this has had knock-on effects across money markets with Sonia swap rates also rising.

Sonia swap rates reflect lenders’ expectations of future interest rates and play a critical role in how fixed-rate mortgages are priced.

Swaps have been rising over the past month, but fixed rate mortgages, by and large, were yet to follow suit – until today.

A month ago, five-year swaps were at 3.8 per cent and two-year swaps were at 4 per cent.

But as of today five-year swaps have risen to 4.17 per cent and two-year swaps are at 4.29 per cent.

During that time the lowest fixed rate mortgages have not risen meaning the lowest fixed rate mortgages are currently below their equivalent swaps – something that is incredibly rare.

Nicholas Mendes, mortgage technical manager at John Charcol believes there is no reason to panic, expecting the spate of rate increases to be a mere blip.

He said: ‘Overall, there has been a significant increase in swaps for lenders to continue holding pricing to the extent they have and these recent increases amongst the high street lenders is essential safeguarding their margins and service levels. 

‘This does not mean we are in for a rough period of continuous increases and I am sure if markets hold firm, we should see a reversal in today’s rate increases notices.’

Simon Gammon, managing partner at Knight Frank Finance is slightly less optimistic.

He said: ‘Clearly, the lenders think that the beginning of 2025 will be another period of sluggish activity in the housing market. 

‘As things stand, this is likely to prove true. Some large lenders have said they would increase the cost of some mortgage products.

‘That will probably prompt others to follow, which will be disappointing for anybody seeking to purchase or remortgage a home in the months ahead. 

‘That said, fairly positive inflation data from both the UK in and the US this week has calmed bond markets, which suggests we’ll see a swift repricing, rather than weeks of sustained increases in mortgage rates.’