Mortgage prices rising ahead of potential bank rate hike

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Some of the nation’s biggest lenders have raised their mortgage rates in the past couple of weeks, and according to many in the industry, more could be coming soon.

The Bank of England (BoE) has made no secret that it is weighing up a base rate rise early next year and, coupled with chancellor Rishi Sunak referring to the Office for Budget Responsibility forecasting 4% inflation next year, an end to this period of ultra-low rates could well seem inevitable.

Lenders who have brought in increases recently include NatWest, Nationwide, and TSB, just today.

“It has come as a bit of a shock that so many of the sub-1% deals being withdrawn as we are used to seeing them,” says Trinity Financial product and communications director Aaron Strutt.

He continues: “Borrowers are advised to lock into the super cheap deals while they can especially if their remortgage is coming up or they are in the process of buying a home. Even though rates are rising the lenders have huge targets to meet so they will want to remain as competitive as possible to attract customers.”

And Private Finance associate director Chris Sykes believes a rate rise may come sooner than next year. He explains: “The base rate being at 0.1% and incredibly cheap debt for borrowers could not last forever and has to some degree fuelled the pandemic property boom along with homeowners changing tastes and requirements and the SDLT holiday.

“In response to the murmurs from the BoE of an upcoming rate rise to combat inflation, potentially now before Christmas, we have seen lenders respond and have already begun to increase rates.

He adds: “The buy-to-let mortgage market was the last to reduce rates significantly (with the best two-year fixed now at 0.99%) as these lenders are often more conservative and we suspect we will see larger percentage rate rise in this space due to this more conservative lending nature in the coming weeks and months.”

Meanwhile, Phoebus Software sales and marketing director Richard Pike comments: “A rate rise, in combination with the rising cost of living, will affect affordability for both borrowers taking out new mortgages and existing borrowers on variable rates, who may already be feeling some financial pressure following the pandemic.

He also points out an alarming consequence of a rate rise: “Especially with the furlough scheme ending. In fact, we are already seeing loan servicers recruiting a lot more collectors, which is a good indicator that they are preparing for a rise in arrears.”

“Whether base rate rises or not, mortgage rates have started edging upwards as the markets have already priced in a rate rise, and possibly two or three more by the end of next year,” concludes SPF Private Clients chief executive Mark Harris.

the majority of people Mortgage Strategy spoke to had one idea in common: borrowers should be snapping up cheap rates now while they last.