Nationwide has hiked its fixed and tracker mortgage rates by up to 0.45 per cent, as markets price in the base rate rising to 5.5 per cent.
On Thursday the lender announced its rates would go up from Friday 26 May, including selected rates across its new business and home mover ranges.
Those looking to secure a loan at current rates need to reserve a product by 8pm today.
The market is reacting to UK inflation staying higher than anticipated at 8.7 per cent, raising expectations that the Bank of England will continue to increase interest rates – the only tool in its arsenal to try and bring down rising costs.
Going up: Nationwide is hiking its mortgage rates by up to 0.45% as swap rate changes push up lending costs
As a result markets now expect the base rate to rise to 5.5 per cent later this year. It is currently at 4.5 per cent after the central bank’s Monetary Policy Committee hiked it by 0.25 per cent earlier in May.
Since the inflation announcement swap rates – the mechanism most lenders use to set their fixed rates – have increased and this is being fed through to mortgage pricing.
Alongside Nationwide’s rate rises, Fleet Mortgages has temporarily withdrawn all fixed rate products, saying it will relaunch in the next few days.
Broker John Charcol’s mortgage technical manager, Nicholas Mendes, said: ‘Anyone within six months of their fixed rate ending, or planning to apply for a new mortgage, should talk to their whole of market broker as soon as possible to secure a rate, or be prepared to sit it out for a few months in the expectation that rates start to fall later this year or early next.
‘While some may state markets have been wrong, unfortunately that has no barring to how markets have reacted and factoring in future rises, which has pushed swap rates up which impacts how lenders price fixed rates.’
Lenders hedge money in batches allowing them to lend out all of the funds in one batch at a certain price, as they are protected from movements in borrowing rates.
Rate rises: Mortgage rates have dropped after their spike but are subject to fluctuating swap rates
However, once that money is gone they must hedge more funds to lend and price accordingly to protect against losses.
‘I expect we will see changes over the next few days,’ says Mendes. ‘When lenders have used up funds already bought I suspects we will see 2 and 5 year deals closer to 5 per cent.’
The current average rate for a two-year fixed rate mortgage is 5.34 per cent, according to Moneyfacts. The five-year fixed rate average is 5.01.
First Direct is currently offering a five-year fix at 4.04 per cent with Natwest offering the same deal.
For those with a smaller deposit First Direct is currently offering a 4.44 per cent deal for on a 10 per cent deposit mortgage, and Principality Building Society is offering 4.45 per cent at the same deposit size.
First Direct’s head of mortgages Carl Watchorn told This is Money, ‘The ongoing interest rate speculation means we can expect some more volatility in mortgage pricing in the next few weeks.
‘During the mini economic crisis in September we stayed consistently on the market with products across all segments to make sure we can support homebuyers. And we have no plans to withdraw from the market at this time.’
