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A number of UK lenders have announced rises in mortgage interest rates in a sign that the race towards more competitive offers is slowing, as the prospect of imminent interest rate cuts from the Bank of England fades.
HSBC has become the latest bank to raise residential mortgage rates after similar moves by Santander, NatWest and Nationwide in recent weeks.
The rise in mortgage costs comes as the cost of living crisis continues as Prime Minister Rishi Sunak seeks to show he supports homeowners ahead of a general election expected this year.
The average five-year fixed interest rate reached a low of 5.18 per cent at the end of January, but has since risen to 5.3 per cent, according to Moneyfacts data on Thursday.
The two-year deal average followed a similar trend, rising from 5.56 percent to 5.71 percent.
The rise signals the end of a period of low mortgage costs when lenders rushed to offer competitive deals as expectations of lower borrowing costs seeped into the property market.
Brokers said lenders were facing very low margins and were sensitive to interest rate expectations.
“It doesn't take much movement in the market for a lender to back out and actually lose money. That's why they have to act so quickly,” said Simon Gammon, a mortgage broker at Knight Frank.
At the end of 2023, there was a rally in bond markets which prompted lenders to reduce mortgage interest rates.
Analysts said Thursday that mortgage offerings will continue to fluctuate in the coming months in response to future market fluctuations.
“Deals below 4 percent will be temporarily prohibited, but once some positive data returns to the market, rates will slowly decline,” said Nicolas Mendes, technical mortgage director at broker John Charcol.
Data last week indicated that the UK economy slid into a technical recession at the end of 2023 with GDP falling by 0.3 per cent in the final quarter. But business activity expanded more than expected in February, fueling hopes that Britain's recession may already be over.
In a sign of continued volatility, Halifax Bank bucked the trend on Thursday by announcing it was set to cut interest rates on residential mortgage deals.
The changing economic outlook has caused swap rates, which lenders use to price their mortgage deals, to rise in recent weeks. Swap agreements allow two parties to exchange payments, with one paying a fixed rate for a variable payment linked to the Bank of England rate.
Two-year bond swaps – linked to the pricing of two-year fixed-rate mortgages – stood at 4.58 percent on Thursday, up from 4 percent at the start of the year. Five-year swaps rose from 3.4 percent to 4 percent over the same period.
Interest rates have stabilized after a long period of continuous increases, which is expected to give confidence to property buyers. The Bank of England raised the cost of borrowing from a record low of 0.1 percent in November 2021 to 5.25 percent last year in an attempt to curb rising inflation.
