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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

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.’

How to find a new mortgage

Borrowers who need a mortgage because their current fixed rate deal is ending, or they are buying a home, should explore their options as soon as possible.

What if I need to remortgage? 

Borrowers should compare rates, speak to a mortgage broker and be prepared to act.

Homeowners can lock in to a new deal six to nine months in advance, often with no obligation to take it.

Most mortgage deals allow fees to be added to the loan and only be charged when it is taken out. This means borrowers can secure a rate without paying expensive arrangement fees.

Keep in mind that by doing this and not clearing the fee on completion, interest will be paid on the fee amount over the entire term of the loan, so this may not be the best option for everyone. 

What if I am buying a home? 

Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be. 

Buyers should avoid overstretching and be aware that house prices may fall, as higher mortgage rates limit people’s borrowing ability and buying power.

How to compare mortgage costs 

The best way to compare mortgage costs and find the right deal for you is to speak to a broker.

This is Money has a long-standing partnership with fee-free broker L&C, to provide you with fee-free expert mortgage advice.

Interested in seeing today’s best mortgage rates? Use This is Money and L&Cs best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

If you’re ready to find your next mortgage, why not use L&C’s online Mortgage Finder. It will search 1,000’s of deals from more than 90 different lenders to discover the best deal for you.

> Find your best mortgage deal with This is Money and L&C

Be aware that rates can change quickly, however, and so if you need a mortgage or want to compare rates, speak to L&C as soon as possible, so they can help you find the right mortgage for you. 

Mortgage service provided by London & Country Mortgages (L&C), which is authorised and regulated by the Financial Conduct Authority (registered number: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage