MILLIONS of homeowners face a fresh mortgage misery as five of Britain’s biggest banks have hiked their rates for the second time this month.
NatWest, Santander, HSBC, Lloyds Bank and TSB have all pushed up the cost of borrowing, sparking fears that other lenders will soon follow suit.
The average two-year fixed mortgage rate has now climbed to 5.73%, its highest level since May 28, according to new analysis from moneyfactscompare.co.uk.
Meanwhile, the average five-year fixed rate has jumped to 5.78%, the highest it has been since April 12.
The hikes come just days before the Bank of England‘s next base rate decision, due on Thursday.
The base rate currently sits at 3.75% and is widely expected to be held this week, although experts have warned it could rise in the coming months if inflation continues to bite.
Rachel Springall, finance expert at moneyfactscompare.co.uk, said the latest round of hikes had been driven by rising swap rates, which lenders use to price their mortgage deals.
She said: “A second wave of mortgage rate hikes has begun from the major banks in reaction to growing concerns surrounding inflationary pressures.
“Swap rates have climbed above 4.70%, leading lenders such as NatWest, Santander, HSBC and TSB to increase selected fixed rates for the second time this month.”
She warned there was worse to come, adding: “It is highly likely other lenders will follow suit to adjust rates, and with some deals withdrawn from the market, it is expected any returning deals could well be priced higher.”
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Falling onto your lender’s Standard Variable Rate (SVR) could cost you hundreds of pounds extra each month.
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Building society giant Nationwide has also repriced its deals for the second time this week.
The number of mortgage products on offer has shrunk too, with just 7,426 homeowner deals on the market on Tuesday, down from 7,458 the day before, as lenders pull products before relaunching them at higher prices.
Ms Springall said the hikes proved that fixed mortgage rates do not always move in line with the Bank of England‘s base rate.
Since the start of March, the average two-year fixed mortgage rate has risen by 0.89%, adding £131 a month, or £1,572 a year, to the cost of a typical £250,000 mortgage taken over 25 years.
Even a smaller rise of just 0.25% on today’s average two-year rate would add around £38 a month, or £456 a year, to repayments.
Ms Springall said the pain was particularly acute for those locked into longer deals, warning: “The mortgage pain shows no sign of easing for those borrowers who cannot yet lock into a new deal, particularly those with a five-year fixed who are not due to refinance until 2027.”
She pointed out just how far rates have come since the ultra-cheap deals of a few years ago, saying: “Back in February 2022, there were sub-2 per cent fixed mortgages available, so moving off this rate will be a huge shock for borrowers.”
The Bank of England estimates that around 750,000 households with a fixed rate due to expire this year are currently paying rates below 3%, meaning many face a painful jump when they come to remortgage.
Ms Springall urged lenders and brokers to be upfront with customers about the true cost of switching deals early, saying: “In the meantime, it is vital that lenders and brokers help customers understand the implications of ending their deal early, such as the early repayment charges.”
How to keep YOUR costs down
Many lenders allow homeowners to secure a new fixed-rate deal up to six months before their current mortgage ends.
Springall said that locking in a fixed rate now could still save homeowners a small fortune compared with falling onto their lender’s standard variable rate, which currently averages a hefty 7.13%.
Based on a £250,000 mortgage over 25 years, borrowers on the standard variable rate are paying £1,787 a month, compared with £1,569 a month on the current average two-year fixed rate, a saving of £218 every month.
If cheaper products become available before the new mortgage begins, the deal can often be reviewed or changed.
Buyers should also be prepared to act quickly.
It’s important to remember an agreement in principle – an initial indication of how much a lender may be willing to offer – does not secure a particular mortgage rate.
Buyers should therefore have their finances fully assessed and be ready to submit a complete mortgage application as soon as an offer on a property is accepted.
Anyone unsure of their options are being urged to speak to a mortgage broker as soon as possible, rather than risk missing out on today’s rates.
