Nationwide has followed Santander in becoming the latest major mortgage lender to increase the price of its loans – and experts say other banks may follow in the coming week.
The UK’s largest building society, which cut rates only last week, increased the pricing on some of its mortgages by up to 0.3 percentage points this morning for new customers and home movers.
It follows rival lender Santander, which upped rates by up to 0.2 percentage points last week. Virgin Money also introduced very small rises of 0.05 per cent on several two- and five-year fixed products.
A series of repricings and rate increases from smaller lenders meant that average mortgage rates on both two- and five-year fixes increased for the first time since August, according to financial analytics firm Moneyfacts.
Mortgage brokers told i that although in the long-term rates are expected to fall, more lenders may have to up their rates next week because the lowest prices are becoming unaffordable.
This is because swap rates – which are based on long-term predictions for where interest rates will go, and have a major bearing on the pricing of fixed-rate mortgages – ticked up a little last month.
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Yesterday’s decision by the Bank of England to hold interest rates at 5.25 per cent – coupled by its warning that inflation could be over its 2 per cent target level by the end of the year – has only led to a very slight reduction in swaps.
Nick Mendes, of John Charcol brokers, said that lenders generally liked to price their mortgages slightly above these rates and generally did so two weeks in advance.
“Any two-year fixed deal below 4 per cent isn’t going to be sustainable considering current market movement, and any five-year fixed sub 3.9 per cent will have limited availability due to some of the lender’s repricing. We could see sub 4 per cent deals off the table if swaps edge up over the next few days,” he explained.
The best five-year deal on the market is currently at 3.89 per cent, from NatWest.
David Hollingworth of L&C Mortgages said it was “tough to call” whether rates might increase further next week, but added: “It does feel that the very lowest rates are more under the threat of withdrawing than they are of being undercut by a competitor.”
“It does feel as though rates may be reaching the bottom of where they can go for now. We’ve seen sentiment shift rapidly before, but at the moment I think we could see a mix of improvements with the keenest rates coming and going as lenders dip in and out of a busy remortgage market.
“Borrowers holding off for ever-falling rates may therefore want to consider whether having an offer in hand could act as a back up,” he explained.
Ben Perks, managing director at Orchard Financial Advisers, said: “Across the board, I think we will see some increases in rates over the coming week.”
But he also said that this was simply a “blip,” that the outlook for 2024 was still “positive,” and he expected lenders to begin reducing rates again afterwards.
When might interest rates fall?
Most major forecasters expect the first cut to interest rates to come in May or June this year.
However, Bank of England Governor Andrew Bailey hinted this could come even earlier, in the next Monetary Policy Committee (MPC) in March.
After the announcement that the base rate would stay 5.35 per cent, in a briefing note, Capital Economists added yesterday: “New language said the MPC ‘will keep under review for how long Bank rate should be maintained at its current level’. We view all this as a good hint that the next move in rates will be a cut.”
Earlier this week, and prior to the interest rate announcement, i polled seven forecasters and found all except one expected a cut before July.
Financial markets expect the base rate to be at around 4 per cent by the start of next year, but the Bank of England warned that if this were to happen, inflation would be at around 2.75 per cent by the end of the year – higher than its 2 per cent target.
This may mean that interest rates cannot be cut as quickly as expected.
Forecasters are split on when they expect rates to be cut
