Barclays and Halifax enhance mortgage charges
- Barclays and Halifax are increasing fixed rate deals by up to 0.24%
Two more major banks have announced they are hiking mortgage rates.
From tomorrow, Barclays and Halifax say they will increase the rates on various home loan deals.
It follows an upwards move by NatWest today and rate hikes by Santander and TSB earlier in the week.
Many of Barclays’ fixed rate deals look set to increase by 0.2 percentage points.
On the up: Five major lenders have now increased mortgage rates this week
Barclays currently boasts the second lowest five-year fix on the market for buyers purchasing with at least a 40 per cent deposit. From tomorrow, that deal will rise to 3.96 per cent.
On a £200 mortgage being repaid over a 25 year term, that’s the difference between paying £1,029 a month and £1,051 a month.
Barclays’ market leading 3.85 per cent deal for those buying with a 25 per cent deposit will also rise to 4.05 per cent from tomorrow.
For home buyers with a 10 per cent deposit also stand to lose out with Barclays upping the rate on its best buy 4.39 per cent to 4.59 per cent.
Two-year fixes are in the firing line as well. Barclays is upping the rates on its lowest two-year fix from 3.9 per cent to 4.1 per cent.
This leaves only Santander and Nationwide offering two-year fixes below 4 per cent.
For home buyers purchasing with a 15 per cent deposit, they will see Barclays’ market leading 4.4 per cent rate rise to 4.6 per cent tomorrow.
Shortly after the news broke that Barclays would be upping rates, Halifax followed suit.
The lender announced rate increases on two and five year fixed rate products of between 0.11 and 0.24 percentage points starting from tomorrow.
This is expected to lead to the disappearance of more sub-4 per cent deals.
Why are mortgage rates going up?
Mortgage rates have been falling at quite a pace since the summer.
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.
However, they are now creeping back up again.
Lenders were expected to increase rates this week because Sonia swap rates – an inter-bank lending rate, based on future interest rate expectations, have been moving higher in recent weeks.
When Sonia swaps rise sufficiently it often results in fixed mortgage rates going up, and vice versa when they fall.
As of 14 October five-year swaps were at 3.8 per cent and two-year swaps were at 4.02 per cent.
This was higher than a month earlier when five-year swaps were at 3.39 per cent and two-year swaps were at 3.73 per cent.
The rise in swaps means there is little to no margin for lenders to make money, which is why some are having to re-price higher.
However, yesterday, the ONS showed inflation falling to 1.7 per cent in the 12 months to September, down from 2.2 per cent in August.
This was the first time since April 2021 that inflation has fallen below target and was below what markets forecasts of 1.9 per cent.
Some experts believe this increases the chances that the Bank of England will speed up the pace of interest rate cuts.
Inflation watch: Inflation has dipped to 1.7%, its lowest level in over three years
As a result, Sonia swaps have since edged lower again, according to Mark Harris, chief executive of mortgage broker SPF Private Clients.
Even so, lenders are still likely to temporarily re-pricing upwards to avoid attracting too many customers on rates that won’t be making them money at present.
‘After a good run of falling mortgage rates, a number of lenders have increased pricing on the back of higher swap rates,’ says Harris.
‘The latter have risen on the back of Budget speculation and concerns over the Middle East, but since the better-than-expected inflation news and growing expectations that rates will be cut again this year, swaps have dipped again.
‘Those lenders who haven’t been able to absorb the increase in swaps have had to increase their mortgage rates.’
‘This has forced more business onto lenders who didn’t reprice and were therefore offering market-leading products.
‘As volumes rose, service could suffer so some lenders have repriced to slow down the amount of business coming in. This domino effect will continue until costs or volumes dictate a reversal.’
Harris therefore thinks we are likely to see more lenders such as Nationwide and HSBC up rates over the coming days or weeks.
Heading up again: In recent months mortgage lenders have been cutting rates but this week has seen a reversal in that trend
How long should mortgage borrowers fix for?
Harris expects rates to continue to fall in the long run and he says many borrowers are currently opting for the shorter two-year fixes based on the assumption that rates will be lower in two years’ time.
‘In the short term, we expect further repricing upwards but in the longer term the direction of travel appears to be downwards,’ he says.
‘Borrowers should plan ahead and speak to a whole-of-market broker. Rates can usually be reserved up to six months before you need them; if when you come to take out the mortgage rates have fallen, your broker should switch you to a cheaper product.
‘We are finding that many clients are opting for shorter-term products in the hope that rates will be lower when they come to remortgage.’
However, Rachael Hunnisett, director at longer-term mortgage lender April Mortgages thinks borrowers may be left disappointed if they fix for two years.
She believes the era of 1-2 per cent mortgage rates is over, and says it’s important for borrowers to think carefully about taking short-term fixed rates.
‘The rise in interest rates highlights the disconnect between base rate expectations and mortgage rates,’ says Hunnisett.
‘Over the past 24 months, the mortgage market has seen considerable rate fluctuations, and mortgage rates, typically based on swap rates that factor in future market predictions, remain volatile.
‘Borrowers need to carefully assess their risk tolerance and consider whether they could handle a significant rate shock if interest rates continue to rise, especially when choosing how long to fix their mortgage.
‘Speculating on future mortgage interest rates, especially with what is often the largest financial commitment of your life – your mortgage, is a high risk strategy. There’s no indication that those low rates will return anytime soon.’
