News comes as average two- and five-year mortgages start to increase
For the first time in three months, average mortgage rates for the two most common loan terms have increased.
The average rate for a two-year mortgage has edged up from 5.36% to 5.37% since last Friday, while five-year fixed rates rose slightly from 5.05% to 5.06%, according to data from Moneyfacts.
Although the changes are minimal, this shift interrupts the recent trend of falling rates seen over the past few months.
The last time both types of mortgage rates increased was in early July, when two-year rates went from 5.92% to 5.93% and five-year rates ticked up from 5.50% to 5.51%.
Over the past week, some major lenders, including Santander, have withdrawn their most competitive mortgage offers. This move follows a rise in swap rates, which play a key role in determining the rates lenders can offer to borrowers. And now another major player has joined the pullback from rate cutting.
Read more: Santander “best in market” mortgage pulled
NatWest has become the latest major bank to raise its mortgage rates, raising concerns that the recent trend of declining home loan rates may be coming to an end. The bank announced that, starting Thursday, most of its two-year and five-year fixed and tracker mortgage products will see an interest rate increase of 0.3%.
For its key five-year fixed mortgage for buyers with a 40% deposit, the rate will jump from 3.79% to 4.09% - just over the psychologically important 4% barrier. Borrowers with a 25% deposit will also face an increase, with the rate on their five-year fix rising from 3.89% to 4.19%. Additionally, some tracker mortgages will go up, including a two-year option for those with a 40% deposit, which will rise from 5.61% to 5.91%.
Read more: Cheap mortgages are over – Lloyds Bank
This sudden reversal in mortgage pricing follows months of decreasing rates and is driven by rising yields on government bonds (gilts), which influence fixed-rate mortgage pricing. The yield on the 10-year gilt hit 4.242% today, an increase of about half a percentage point since mid-September. This rise reflects bond market concerns over a potential increase in government borrowing in the upcoming Budget, which, while still unlikely, could raise worries about repayment risks for investors.
The property market had been showing signs of recovery as mortgage rates had been easing, particularly with sub-4% deals becoming more common. Despite the rise in mortgage rates, the Bank of England is still expected to reduce its base interest rate from 5% to 4.75% at its next Monetary Policy Committee meeting in November.
