BARCLAYS and Santander are making a big change to mortgage interest rates today.
As a result, borrowers face a rise in mortgage costs, with both lenders either increasing rates or withdrawing their most affordable deals.
Recent increases in swap rates, which directly affect the cost of fixed-rate mortgages, have led experts to warn of rising mortgage rates amid various uncertainties.
Santander will “temporarily” withdraw its cheapest five-year fixed deal, offering a rate of 3.68% via brokers, at 10pm this evening.
Lenders often do this if there’s a surge in interest because it is the most competitive on the market.
Nicolas Mendes, mortgage technical manager at John Charcol, explained: “Although high demand seems positive, it can strain the lender’s ability to process applications efficiently.
“To maintain good service levels and ensure applications are handled in a timely manner, the lender may need to temporarily withdraw the product to manage their workload.
“Once they catch up, they may reintroduce the product, potentially at the same rate or with adjusted terms.”
We’ve asked Santander if it will increase the rate on this product when it returns to the market.
Meanwhile, Barclays has increased the rates on some of its fixed-rate mortgages.
The bank’s lowest five-year offer for buyers has risen from 3.71% to 3.76% overnight.
However, those looking to remortgage could benefit from a slight reduction, as Barclays’ best five-year remortgage rate has been cut from 3.93% to 3.85%.
Interest rates on home loans had been on a downward trend, leading many homeowners and buyers to anticipate further reductions.
However, experts have cautioned that rates are now climbing due to various uncertainties.
David Hollingworth, associate director at L&C Mortgages, said on Wednesday: “The mortgage market has seen rates fall in recent months, but that may be coming to an abrupt halt.
“Fixed rate pricing depends on what the market anticipates may happen to interest rates and uncertainty over the forthcoming budget, mixed messages from the Bank of England and global unrest is pushing costs back up for lenders.”
As a result, swap rates, which reflect market expectations for future interest rates, have been on the rise.
These directly impact the cost of fixed-rate mortgages, prompting lenders to increase their rates to avoid financial losses.
Smaller lenders, including Coventry Building Society, Co-operative Bank, Molo, and LiveMore, have already responded by raising rates and withdrawing their least cheapest deals.
The two-year swap rate was 4.05% as of October 9, while the five-year swap rate was 3.80%, according to Chatham Financial.
These figures are higher than the respective rates of 3.82% and 3.46% recorded in September.
A variety of factors have unsettled market expectations, causing an increase in both gilt yields and swap rates, according to Nicholas Mendes, mortgage technical manager at John Charcol.
He said: “First, Andrew Bailey’s recent comments, in which he indicated expectations for larger or more frequent interest rate reductions, have introduced some uncertainty.”
The Governor of the Bank of England indicated last week that the institution could take a “more aggressive” approach to cutting interest rates.
Currently, interest rates stand at 5%.
The rate, which banks use to determine the interest on mortgages and loans, was last reduced from 5.25% in August.
Andrew Bailey’s comments led a number of leading banks to bring forward predictions for interest rate cuts.
But this sentiment didn’t last for long.
Nicholas said: “Markets had been pricing in interest rate cuts for November and December, but expectations for December have now softened slightly.”
This shift occurred because, just a day later, various members of the Bank of England Monetary Policy Committee (MPC) expressed views contrary to those of Andrew Bailey.
MPC member Huw Pill indicated that rates should be reduced “gradually,” citing caution over the long-term trajectory of inflation.
A similar situation arose at the beginning of the year when mortgage rates initially fell below 4%, only to be increased again as it became apparent that the Bank of England would not reduce rates as swiftly as anticipated.
For now, swap rates will remain uncertain until the Bank of England decides whether to cut interest rates from 5% on November 7.
Swap rates primarily influence fixed-rate mortgages.
As a result, these are the main products that lenders are currently increasing.
Those on standard variable and tracker deals remain unaffected, as these mortgages are tied to the Bank of England’s base rate, which has not changed.
If you are already locked into a fixed-rate deal, you will also be unaffected.
However, the rise in fixed rates will be a significant blow to prospective homebuyers and those looking to remortgage.
According to the banking trade body UK Finance, approximately 1.6 million mortgage deals are set to expire in 2024.
This means that over a million households also face the prospect of their monthly payments increasing by hundreds of pounds.
According to moneyfactscompare.co.uk, the average two year fixed rate homeowner mortgage stands at 5.37%.
This is down from an average rate of 5.56% last month.
Meanwhile, the average five-year fixed residential mortgage rate is 5.21%, a decrease from 5.37% the previous month.
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
