Major lenders stop offering deals, should your clients lock in before it's too late?
Just days ago we broke the story that mortgage rates were coming under pressure as Rachel Reeves’ upcoming budget started making markets nervous, and just yesterday one major lender broke ranks from the mortgage discount frenzy and started to raise its rates.
Now, in what may be the start of a very worrying trend, the best five-year mortgage deal available in the market is being pulled, signalling a potential halt to the recent trend of falling mortgage rates. Santander will remove its five-year fixed rate mortgage at 3.68% from the market today (October 11). This product was previously available to borrowers who had a minimum deposit, or equity of 40% in their homes.
Santander’s move is part of a broader trend among major lenders who have been adjusting their rates recently. Barclays, for example, will increase one of its mortgage rates starting today – its lowest five-year rate for home purchases, which will rise from 3.71% to 3.76%. However, the lender has also announced rate cuts of up to 0.50%. For those looking to remortgage, the five-year fixed rate will decrease slightly, from 3.93% to 3.85%.
The Co-Operative Bank has also temporarily withdrawn some of its fixed-term mortgage products, while Coventry Building Society is set to raise rates again, having already adjusted prices last week after launching a market-leading deal. This demonstrates that mortgage rates are fluctuating rapidly as lenders react to changing market conditions.
Read more: Are mortgages going to rise – again?
Experts warn that recent rises in swap rates - a key factor influencing fixed mortgage rates - are partly behind these changes. Swap rates have been influenced by global events, including geopolitical tensions, and mixed signals from the Bank of England’s Monetary Policy Committee (MPC) regarding future interest rate changes.
Aaron Strutt from Trinity Financial told inews.co.uk: “Santander has been offering the most competitive rates for two-, three-, and five-year fixed mortgages, but recent funding cost increases have forced the bank to adjust its pricing. We can expect other lenders to follow suit and increase their prices in the coming days.”
Nicholas Mendes, of John Charcol, has commented: ”In recent days, a range of factors has unsettled market expectations, leading to a rise in gilt yields and swap rates. This is likely to start feeding into the mortgage market, especially as lenders adjust to the changing conditions.”
Borrowers nearing the end of their mortgage deals are being advised to act promptly. David Hollingworth, from L&C Mortgages, told Mortgage Introducer: “The mortgage market has seen rates fall recently, but that trend could end abruptly. Fixed-rate pricing is influenced by market expectations, and current uncertainties regarding the upcoming budget, mixed messages from the Bank of England, and geopolitical tensions are pushing costs up for lenders. If this trend in swap rates continues, fixed-rate mortgages may begin to climb again.”
The Bank of England’s fluctuating messaging has further complicated the market’s outlook. Last week, the Bank’s chief economist, Huw Pill, warned that interest rate cuts should not be too rapid, contrasting with Governor Andrew Bailey’s comments suggesting a more aggressive reduction might be possible. This uncertainty has unsettled the markets, reducing the likelihood of two anticipated rate cuts later this year.
Read more: Don’t cut rates too quickly
“I think there is a very good argument to make that we’ll see the pricing of fixed rate mortgages increase from here,” said Richard Campo, head of growth at mortgage and insurance practice Heron Financial has told Mortgage Introducer. “This is in part driven by money markets increasing in recent weeks - for example, five-year swaps are up about 2% in the last week and 7% in the last month. So, as lenders complete on previous funds they have brought in and go back to market for more, the costs have simply increased so that usually manifests in higher fixed rate mortgages.”
Michelle Lawson, mortgage adviser and director at Lawson Financial, has commented: “None of these add any positivity and the honeymoon period could be over, but the reactions to all of this is the tell-tale indicator,” Lawson said. “Swap rates have increased and there is a mixed bag of lender reaction with some of the more exposed specialist lenders increasing, but with one or two decreasing. The same is in the residential space, so there is currently no clear pattern.”
Reeves’ budget announcement, scheduled for October 30, is expected to be a crucial moment for the mortgage market.
Read more: Borrowing costs rise as Reeves budget fears grow
Gerard Boon, from Boon Brokers, has commented: “Mortgage lenders are naturally taking a more cautious approach and we should expect a number of them to marginally increase rates in the short-term to retain their profit margins, if swap rates continue to rise. For now, I do not believe that there is cause for concern regarding significant increases to mortgage interest rates in the UK. If they do increase across the board, I believe they will be marginal and short-lived in the market, based on existing economic data.”
Serena Smith, from Mortgages with Serena, noted in recent days: “Slight increases at this time could make a large difference for those higher LTV clients, and if this is to affect them or their affordability, then now would be a mindful time to lock in.”
