Warning UK mortgage rates set to rise further

white painted buildings

Mortgage borrowers are being cautioned about further increases in mortgage rates as the market faces ongoing turbulence.

London & Country, a broker, stated that lenders have been steadily withdrawing deals and raising rates, with more of the same expected in the coming week. Over the past month, mortgage rates have risen by approximately 0.5 percentage points, approaching an average fixed deal of 6%. On Monday, Santander became the latest major lender to temporarily withdraw new deals due to market conditions. HSBC also removed new deals for customers through brokers last week but reopened them temporarily on Friday.

This year, around 1.5 million households are expected to come off fixed mortgage deals, leading to a significant increase in their monthly repayments. The rise in rates comes after recent data showed that UK inflation is not declining as quickly as anticipated. Some predictions suggest that the Bank of England may raise interest rates higher than previously expected, potentially reaching 5.5% from the current 4.5%. This directly affects mortgage lenders, many of whom have raised rates and withdrawn deals from the market in recent weeks.

Santander announced that it would be “temporarily withdrawing all our new business residential and buy-to-let fixed and tracker rates” until Wednesday 14 June. David Hollingworth from London & Country explained that lenders were being compelled to reprice deals as the market shifted, and those with lower rates were facing a surge in demand. He noted that further repricing may occur this week but expressed hope that rates would stabilize and the market would calm down in the near future.

According to financial data firm Moneyfacts, the average two-year fixed-rate mortgage deal stands at 5.86%, while a five-year deal has reached 5.51%. In May of the previous year, these rates were 3.03% and 3.17% respectively, resulting in significant increases in borrowing costs for many households. When a fixed term ends, borrowers typically revert to their lender’s standard variable rate (SVR). However, brokers have warned that SVRs have significantly increased, meaning that borrowers who adopt a wait-and-see approach would experience a substantial jump in their interest rate, resulting in a much higher monthly mortgage payment.

Ian Stuart, the CEO of HSBC in the UK, acknowledged that it is a “deeply concerning” time for many customers. He highlighted the impact on monthly budgets when borrowers transition from old rates, such as 1.5%, to much higher rates, like 5%.

Share Post

More News