Households with agreements ending later this year are rushing to lock in rates amid fears prices could rise further
Homeowners are being urged to fix a mortgage deal now as more major lenders increase their rates in response to the Middle East conflict with experts warning they could rise to as high as 5 per cent over the next few weeks.
Barclays and NatWest are the latest high street lenders to announce increases to their residential mortgage rates.
Barclays confirmed it will increase its rates by 0.1 percentage points from tomorrow. For example, its 60 per cent loan-to-value (LTV) two-year fixed rate is rising from 3.7 per cent to 3.8 per cent.
Meanwhile, NatWest said it will make increases to its existing and additional borrowing customer products from tomorrow and Fleet Mortgages, a buy-to-let lender owned by Starling Bank, has temporarily withdrawn all fixed products.
Principality is increasing a number of its products by 0.3 percentage points.
Nationwide, HSBC, Virgin Money and Coventry Building Society all announced plans to increase some of their fixed rates last week and brokers have been told more products are expected to be pulled from the market today.
David Hollingworth, director at L&C Mortgages, said: “As last week progressed, a growing number of lenders hiked their fixed rates. That will undoubtedly continue this week as those yet to make a change will only be under more pressure as others withdraw around them.”
Previously, there was expected to be one or two cuts to the base rate this year but economists now believe this will no longer be the case with some predicting there to be a rise instead which will have a knock on effect on mortgage prices.
Are households looking to lock in rates?
Households with mortgage deals ending later this year are rushing to lock in rates amid fears prices could rise further, brokers have said.
Generally, mortgage holders on fixed deals that expire within the next three to six months are allowed to lock in a new rate that starts once their current one ends. If rates rise before their deal ends, they can keep the offered rate; if they fall, they can move to the cheaper rate.
Mortgage brokers say customers typically do not lock in new deals as early as they could but the latest warnings around rate rises are making them act.
Andrew Montlake, CEO of Coreco mortgage brokers said: “Since tensions have been raised across the Middle East which has caused swap rates in the UK to rise dramatically, we have had an influx of clients wanting to fix into a rate sooner thank they may have otherwise.
“Whilst we contact all our clients six months before their existing rate expires to start the conversation and review the market, many had been choosing to wait and see as the expectation was that there would be another fall in mortgage rates.
“That is not the case now and advice is very much to lock into a product sooner rather than later.”
Other brokers said they were being contacted by clients who wanted to lock in new rates now.
Lewis Shaw, a mortgage broker at Shaw Financial Services, said he always told home loan holders to start looking at new rates six months before their deal ended, but that many customers did not follow this guidance.
He said now many customers were choosing to act now that rates were already rising.
“I’m seeing a lot of people trying to shut the gate after the horse has bolted,” he said.
Nick Mendes of John Charcol brokers added: “Many borrowers technically have a six-month window to secure a new rate, but a lot still leave it until the final couple of months.
“When there’s a sudden shift in the news flow around interest rates or markets, it often acts as a prompt for some of those borrowers to start looking sooner.
“What we are seeing more of is clients asking whether they should secure something now, or in some cases whether it’s worth paying an early repayment charge to lock in a deal slightly earlier than when their fixed rate ends, to offset the risk of paying a higher rate if they wait.”
Why are mortgage rates rising?
Experts say rates are primarily rising because swap rates have spiked over the past few days. Swap rates follow long-term Bank of England (BoE) base rate predictions and are used by lenders to set their mortgage deals.
Two-year swap rates jumped from 3.66 per cent on Friday to 3.99 per cent today, while five-year swaps increased from 3.81 per cent to 4.09 per cent.
Swap rates are rising because experts now believe the BoE will make fewer base rate cuts this year than previously predicted, as inflation is expected to rise due to price hikes caused by the Middle East conflict.
The war in Iran has been driving up oil and gas prices, while trade disruptions are expected to hit food prices, both of which will push up inflation.
The price of Brent Crude oil hit $119 (£89) a barrel today, surpassing the $100 (£75) mark for the first time since 2022 after the Strait of Hormuz, one of the world’s most important trading routes, was effectively closed due to the conflict.
Interest rates are used to control inflation. The BoE tends to lower interest rates when inflation is low to encourage spending, and increases or holds interest rates when inflation rises to encourage saving, reducing pressure on prices.
Brokers are now expecting another round of fixed mortgage rate rises in the near future unless swap rates quickly start to ease up.
Mike Staton, director of Staton Mortgages, said: “Oil prices are up, so inflation and swap rates are up. As a result, lenders are repricing. If this carries on, expect 5 per cent fixes to become the norm again over the next few weeks.”
Mendes added: “If swap rates remain elevated, upward repricing from lenders is the most likely near-term direction.
“Markets had previously been pricing in several cuts this year, but expectations have shifted quite quickly and we’re now closer to a scenario where perhaps only one cut happens across the year at best.
“Although oil prices have pulled back from earlier peaks, they remain materially higher, still trading a little above $100 and roughly 10 per cent higher overall.
“Energy prices tend to be one of the first transmission points into inflation expectations, and that uncertainty has filtered straight through into government bonds and swap markets.”
Mr Mendes said gilt yields – the interest rates on government bonds – have also risen significantly over the past few days, which affects mortgages because these underpin the funding costs lenders use when pricing their fixed deals.
“We’ve seen a sharp move in gilt yields, with the two-year currently around 21 basis points higher at roughly 4.08 per cent,” he said.
“As a result, we’re likely to see another wave of lenders withdrawing or repricing deals over the coming days, including some who only increased rates last week.”
Mr Hollingworth said that while increases have so far been “relatively moderate”, swap rates have not levelled off and this could drive further rounds of rate hikes.
“In addition, the further surge in oil prices will only add more pressure and force lenders to hike fixed rates,” he said.
What should homebuyers or those remortgaging do now?
Thousands of people in the process of buying homes or coming up to remortgage on their properties will be wondering whether to wait out the market volatility or lock in a fixed deal.
Experts say that trying to time the market is a risky game, but that it may be a safer bet to agree a fixed rate now – particularly as these can usually be changed before your new deal begins if rates come down.
Mr Mendes said: “Looking ahead to the next week or so, much will depend on whether markets settle or if volatility continues. For homeowners approaching a remortgage, the key point is that volatility can push mortgage pricing around quite quickly in either direction.
“Securing a rate early can act as a form of insurance if markets remain unsettled.”
Mr Hollingworth added: “Borrowers will need to act quickly if they are looking at a particular deal, as it looks like deals will come and go rapidly until things calm down.”
