TSB is the latest mortgage lender to increase its interest rates, as borrowers continue to battle rising monthly payments.
In an email to brokers today, the bank announced several of its two-year fixed rate mortgages were going up by 0.4 per cent from tomorrow (Wednesday 5 July).
These changes apply to both its residential and buy-to-let products, and in addition some five-year buy-to-let rates are increasing by 0.35 per cent.
Mortgage squeeze: TSB is the latest major lender to push up fixed mortgage rates, causing further pain for borrowers who need a new loan
Those in the process of getting a new mortgage will need to submit their applications by midnight on Tuesday 4 July in order to lock in the lender’s current rates before the increases take effect.
Last month TSB gave less than four hours notice before discontinuing some of its mortgages.
On 5 June TSB was offering a two-year fixed rate of 5.34 per cent to those with a 25 per cent deposit or equity. The same rate is now at 5.99 per cent and will likely go to 6.39 per cent tomorrow.
This means that if someone took out a £200,000 mortgage over 20 years with the lender a month ago, their monthly payments will have been £ 1,357.76. From tomorrow someone taking out the same mortgage would pay £120.46 more or £1,478.20.
Nicholas Mendes, mortgage technical manager at broker John Charcol, said: ‘The TSB increases are a sudden jump in comparison to others in the market.
‘The majority of the big high street lenders have already made substantial increases to their rates, which means they currently sit outside of the best buys.
‘I still think we may see further increases in the future if there isn’t substantial progress in bringing down inflation.’
The average five-year fixed mortgage rate has gone over 6 per cent for the first time since November last year. Borrowers taking out a five-year fixed rate will now pay 6.01 per cent on average, according to Moneyfacts, up from 5.97 per cent yesterday.
Excluding the period around last Autumn’s mini-Budget, the last time rates had been so high was in December 2008.
The news from TSB is the latest in a tumultuous month for home loans, kicked off when May’s higher-than-expected inflation figures spooked the market.
Lenders moved rates again in anticipation of the Bank of England’s decision to increase the base rate by 0.5 per cent on 22 June, pushing it to a 15-year high of 5 per cent.
Market expectations that the base rate may go as high as 6 per cent over the next year have led to further increases as lenders keep up with swap rate movements.
Swaps provide an indication of where interest rates are likely to be at a certain point in the future.
The two-year swap rate is currently 5.87 per cent, and has increased by 0.82 percentage points over the past month and 3.29 percentage points over the past year.
Swap rates – the money market rates that lenders use to set fixed rate mortgage pricing – have increased substantially in recent weeks
Historically, shorter-term fixed mortgages have worked out cheaper as lenders were more comfortable dropping rates for shorter deals – but five-year mortgages are currently cheaper than two-year ones.
However, the market now expects rates to continue rising in the short term and then hopefully full further down the line. Currently five-year swap rates are at 5.06 per cent.
Last month the Government and mortgage lenders announced a package to help borrowers with rising costs including protection from repossession for a year and the chance to move to an interest-only deal for six months without impacting credit scores.
However, lenders are grappling to get to grips with the details of the new ‘mortgage charter‘ leaving mortgage holders in limbo.
