Three more banks hike mortgage rates – what it means for you

ANOTHER three lenders have hiked their mortgage rates in a bitter blow to first-time buyers and those needing to remortgage.

Both Santander and TSB pulled various deals over the weekend and upped their fixed rates.

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This morning Coventry Building Society confirmed rate hikes across its two, three and five-year mortgage deals.

It is the latest wave of lenders pulling cheaper deals only to come back with higher rates.

Nationwide, Halifax, NatWest, Barclays, HSBC, Virgin Money and Skipton and Yorkshire building societies have all put mortgage rates up in the past two weeks.

The hikes have been significant, with some lenders adding up to 0.85 percentage points on to fixed rates.

It means the average two-year fixed rate is now 5.72%, up from 5.26% just four weeks ago, according to Moneyfacts.

The average five-year fixed rate is now 5.41%, up from 4.97% at the start of May.

Last month the Office for National Statistics revealed that inflation dropped to 8.7% in April.

But the fall had been expected to be far greater, with experts expecting it to drop to 8.2%.

As a result, the Bank of England is under more pressure to raise the base rate again.

In May it went up for the twelfth time in 18 months, to 4.5%.

Markets now predict it could go up to 5.5% by this time next year.

This has pushed up lenders’ mortgage costs, and they’re passing that onto customers hoping to buy or remortgage their homes.

Kellie Steed, Uswitch mortgage expert, warned some lenders have chosen to “go a step further” by pulling deals from the market entirely.

“The number of residential mortgage deals has fallen 7% over the past week,” she said.

“More lenders are expected to follow suit in the run-up to the next base rate announcement on June 22.”

Longer mortgage terms

Higher mortgage rates make monthly repayments higher.

Two years ago, you could get a two-year fixed rate mortgage for 0.99%.

On a £100,000 mortgage taken over 25 years this would have meant monthly repayments of £376.

If you were to borrow £100,000 over the same term today at the average two-year fixed rate of 5.72%, your monthly repayments would be £627.

That’s an extra £251 a month and it’s forcing borrowers to take longer deals.

One in five first-time buyers is now taking a mortgage lasting more than 35 years – a record high, according to UK Finance.

A year earlier, in March 2022, just under one in 10 were taking on mortgages lasting more than 35 years.

In 2005, when the records started, this proportion was just 2%.

Longer mortgage terms can make monthly payments more manageable, but borrowers can end up paying more in interest.

For example, take a £100,000 mortgage fixed for two years at 5.72%.

Taken over 25 years monthly repayments would be £627 and you would pay £88,188 interest overall.

If you borrowed the same amount over 35 years, monthly repayments would be £552 but you would pay £131,635 interest overall.

You’d pay £75 a month less but overall, the same mortgage would cost you a massive £42,447 more.

What does it mean for mortgage holders?

Lenders are primarily upping their fixed mortgage deals instead of their standard variable and tracker deals right now.

Anyone whose fixed deal comes to an end this year is set to see their monthly payments increase by an average of £192, according to Hargreaves Lansdown.

Around 1.3million households are currently on fixed mortgage deals which later expire this year.

And 116,000 of these households will see their fixed deal expire this month, according to the ONS.

David Hollingworth, associate director at L&C Mortgages, said: “Many borrowers will have been protected from the higher interest rates so far as they are still locked into a fixed rate.

“However it’s important to plan ahead and even if their deal may not be up for review for several months they could still take action to grab a deal now if they are worried about rates continuing to climb. 

“Lender offers are generally valid for up to six months so they could apply now and then keep a close eye on rates to see if things ease back over time.”

What does it mean for first-time buyers?

Sarah Coles, personal finance expert at Hargreaves Lansdown, said there’s now “a real risk they’re priced out” and can’t buy the property they want.

She said: “They may fail the affordability test now that rates are higher, or they may simply decide that it’s too far for them to stretch their income.

“It could mean sales fall through, and if enough of them do so, it could hit house prices too.”

How to get the best deal on your mortgage

If you’re looking for a traditional type of mortgage, getting the best rates depends entirely on what’s available at any given time.

But there are several ways to land the best deal.

Usually the larger the deposit you have the lower the rate you can get.

If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.

Your LTV wuill go down if your outstanding mortgage is lower and/or you home’s value is higher.

A change to your credit score or a better salary could also help you access better rates.

And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.

You can lock in current deals sometimes up to six months before your current deal ends.

Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.

But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.

To find the best deal use a mortgage comparison tool to see what’s available.

You can also go to a mortgage broker who can compare a much larger range of deals for you.

Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.

You’ll also need to factor in fees for the mortgage, though some have no fees at all.

You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.

You can use a mortgage calculator to see how much you could borrow.

Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.

You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.

This post first appeared on thesun.co.uk