Are mortgage rates increasing again? – what you need to know

Following weeks of successive interest rate cuts from a variety of mortgage lenders, this week has seen a surprise increase in mortgage rates across a number of providers. Following the earlier-than-expected cut to the Bank of England base rate in August, many economists have been predicting at least one further base rate cut before the end of 2024, which, combined with some positive commentary from the Governor of The Bank of England, encouraged lenders to start reducing interest rates for homebuyers and those looking to remortgage.

Some of these mortgage deals have now been withdrawn from the market, while others have been increased to reflect a shift in lenders’ short-term outlook, which may concern borrowers who are waiting and watching for rates to fall further before securing a mortgage deal.

What is changing in the mortgage market?

Confusingly, while some lenders have either pulled or increased the interest rate on their fixed-rate deals, other mortgage providers have done the reverse. Santander has been at the forefront of mortgage interest rate cuts over the last couple of weeks but it is pulling some of its 5-year fixed rate deals at 11 pm on the 11th of October. At the time of writing, it offers the lowest interest rate for a 5-year fixed deal on a 60% loan-to-value mortgage at 3.68% and is amongst the cheapest rates for an equivalent 90% LTV mortgage at 4.49%. Santander’s rates can be secured up until 10 pm on the 11th of October and it plans to relaunch these products on Tuesday 15th October.

Coventry Building Society pulled a number of mortgage deals earlier this week and has since repriced these taking its 5-year fixed rate on a 65% loan-to-value mortgage from 3.74% to 3.99% and its 2-year fixed rate on the same LTV from 4.09% to 4.19%. While these are small upward adjustments, they contrast Coventry's bold rate cuts over previous weeks, which gave it the top position in many mortgage Best Buy tables.

The Co-operative Bank for Intermediaries has also pulled a number of fixed-rate mortgage deals. We also saw smaller, specialist lenders such as Aldermore and Keystone pull and reprice some buy-to-let mortgage deals.

On a positive note, both NatWest and Virgin Money have announced rate cuts over the last few days and have yet to increase the rates on any of their mortgage deals and Nationwide, who are currently offering some of the lowest fixed rate deals in the market, are also yet to announce any adverse adjustments to their mortgage offers. Additionally, both Clydesdale Bank and Barclays have announced a number of rate cuts to their 2 and 5-year fixed-rate mortgage deals. Clydesdale has reduced its rates on some mortgage deals by up to 0.25% with the lowest being 3.89%.

It is clear that the mortgage market is divided right now. Some providers are pressing ahead with rate cuts, while others are choosing to pull their best deals and raise rates instead. To find the best mortgage deals based on your own needs, you should use our mortgage rate comparison tool which allows you to search over 90 lenders’ mortgage deals to find and secure the best rates. You can also refer to our article, “Best mortgage rates in the UK” which we update regularly with the best deals in the mortgage market.

Why are some lenders pulling or increasing mortgage rates?

Given the steady progress in falling mortgage interest over some weeks, it is fair to ask what has changed to cause this shift in the market. Lenders usually react to a variety of factors in the market that could make swap rates higher. Swap rates are the rate at which lenders secure funding from financial institutions; increased swap rates make lending more expensive, which, in turn, impacts the lender's profit and prompts them to reprice the rates they offer borrowers.

While not all mortgage lenders are reversing recent cuts to mortgage interest rates, it is clear that a shift has occurred that is primarily driven by market uncertainty causing a movement in swap rates. In the upcoming Autumn budget, the Chancellor of the Exchequer, Rachel Reeves, is largely expected to deliver a budget that will include increases in government borrowing to fund investment into growth for the country, as well as other measures that will raise money for the treasury that are as yet unknown. The speculation around what these measures might be increases uncertainty in markets which can have a detrimental effect on the cost of borrowing.

Although fuel prices have remained fairly stable, recent increases in geopolitical tensions in the Middle East are also concerning markets, as further escalations to the war in that region could mean an increase in the cost of oil and gas. This would have a detrimental effect on inflation, one of the key metrics that the Bank of England uses to gauge whether further base rate cuts are possible.

Commentary from the Bank of England has also been somewhat contradictory, and this is perhaps why we have been getting mixed signals from lenders in the last few days. The Governor of the Bank of England, Andrew Bailey, had previously stated that the Bank “could be more aggressive” with rate cuts, while the Chief Economist at the Bank of England warned against “cutting rates either too far or too fast”. Andrew Bailey has since made further comments outlining the need for close monitoring of inflation to ensure that base rate cuts support the economy by keeping inflation at the desired level of 2%. Although none of these comments mean that a further cut to the base rate this year is off the cards, recent comments have tempered initial enthusiasm.

How to secure the best mortgage rate

Although it can be tempting to wait for mortgage rates to fall further before fixing a deal for your home purchase or remortgage, there is merit in taking a few steps to safeguard yourself against an adverse change in the market. You can usually secure a rate with your lender by completing a basic application. Some lenders will let you secure a rate with a decision in principle (DIP), while others may require a full application submission to ensure that your rate can be held for your home purchase or remortgage.

If you have not sourced your mortgage deal, you can benefit from speaking with a mortgage broker who will not only find you the best mortgage deal for your circumstances but will also ensure that you are likely to be accepted before helping you complete the necessary processes to secure a rate.

If you do not have a mortgage broker, you can find one by searching the online professional directory, Vouchedfor* where mortgage brokers are listed based on your locality and you can select based on customer reviews and any specialist needs you may have. Alternatively, you can contact the online mortgage broker, Habito* where a mortgage broker can provide you with online and over-the-phone advice free of charge to secure your mortgage deal with you.

 

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