Leading British banks are re-entering the mortgage market with interest rates of almost 6 per cent, after halting new fixed-rate home loans last week following turbulence in the UK government bond market.
Barclays, Skipton Building Society, NatWest, Virgin Money and Nationwide are among the lenders to increase rates on new mortgage deals in the wake of chancellor Kwasi Kwarteng’s “mini” Budget just over a week ago, which sent gilt yields soaring.
The average rate on two-year fixed deals jumped to 5.75 per cent on Monday, up from 4.74 per cent on the day of Mr Kwarteng’s announcement on September 23rd, according to data provider Moneyfacts.
The increase means rates on two-year fixed deals are at their highest level since December 2008, when rates were 5.8 per cent.
Banks were forced to temporarily withdraw mortgages for new customers last week because of the sharp rise in gilt yields, which they use to price fixed-rate mortgages.
Many banks are still waiting for markets to settle before returning with new home loans, while some have returned with higher rates.
“We have had another busy day of rate hikes with some of the biggest lenders increasing their prices and pulling their cheapest deals,” said Aaron Strutt, of broker Trinity Financial. “We were hoping fixes would stabilise but for the moment they are heading up.”
There were 2,262 mortgage products available to UK borrowers on Monday, down from 3,961 on the day of the “mini” Budget, according to Moneyfacts, after lenders rushed to withdraw deals from the market.
Barclays told brokers late on Monday that it would increase rates across certain residential and buy-to-let deals from Tuesday.
Skipton, which withdrew mortgages for new customers last week, said it would return to the market with a new five-year fixed range on Tuesday at higher rates, including a product for people with only a 5 per cent deposit.
NatWest, which was last week the only lender that continued to offer new mortgages at previous rates, on Monday made a series of rate increases across residential and buy-to-let products.
The bank said it had increased rates by almost 1.5 percentage points on some of its remortgage deals, fuelling concerns that borrowers face steep cost increases when their fixed-term mortgages expire.
According to the Bank of England, more than 2mn borrowers with fixed-term products will need to remortgage between now and the end of 2024.
Ray Boulger, of broker John Charcol, said that on Monday the best fixed-rate deal over two years with a 40 per cent deposit was 4.56 per cent offered by Halifax. This compares with a best rate of 3.57 per cent from Skipton three weeks ago.
In another sign of the turbulence in bond markets, some lenders are now charging higher interest rates for two-year fixes than those for five- or even 10-year mortgages, as wholesale borrowing is now cheaper for longer rather than shorter-dated funding.
“NatWest’s new low-deposit, five-year, first-time-buyer rates are actually better than its 40 per cent two-year fixes, showing just how crazy the market is,” said Strutt.
The lenders’ decision to raise rates was likely to put the brakes on property sales, said Dominic Agace, chief executive of estate agency Winkworth.
“It’s what happens every time there is a step up in mortgage rates,” said Agace. The slowdown would be particularly marked where sales peaked during the pandemic, such as in the market for large country homes, he added. - Copyright The Financial Times Limited 2022
