Mortgage repayments get more expensive overnight as Bank of England raises interest rates

·3-min read
 (Daniel Lynch)
(Daniel Lynch)

Mortgage repayments on new borrowing became significantly more expensive overnight after the Bank of England‘s Monetary Policy Committee increased the Bank’s base rate for the fifth successive time on June 16.

Interest rates offered by mortgage lenders had already risen in recent weeks, in anticipation of the rise.

Around 1.3 million homeowners’ fixed-rate mortgage deals are due to end at some point this year, according to UK Finance figures, which means many borrowers will soon need to refinance or find themselves paying their lender's standard variable rate.

At 1.25 per cent, the Bank of England base rate is now at the highest it has been in 13 years, meaning that from today homeowners remortgaging or moving from a fixed rate to a standard variable rate will see their monthly mortgage payments rise.

Mortgage lenders change their offers regularly, depending on base interest rates but also on factors such as how they compare to other providers. To offer the cheapest mortgage rate by some margin, for example, would see an overwhelming number of new applications and could risk overexposure for the lender.

Monthly repayments increase overnight

On Wednesday night HSBC increased its five-year fixed mortgage offer from 2.61 per cent to 3.21 per cent initial interest rate (for up to 60 per cent loan to value). This equates to a difference of almost £80 in monthly payments for a £250,000 loan with a 25-year repayment term compared to if a borrower had agreed their mortgage a day earlier.

Virgin Money increased its five-year fixed mortgage (75% loan to value) from 3.04 per cent to 3.24 per cent. And a two-year fixed mortgage (65% loan to value) is now over three per cent (3.19%) from 2.99 per cent.

Natwest has increased its five-year fixed mortgage (75% loan to value) to 2.9 per cent from 2.75 per cent.

Today Halifax is increasing its homebuyer products by 10 basis points (0.1%).

At the end of May, Nationwide offered a five-year fixed mortgage (60% loan to value) at 2.54 per cent interest, earlier this week that rate was increased to 2.94 per cent or 3.29 per cent if you choose to not pay an upfront fee of £999.

“The most significant increases have been by some specialist lenders whose cost of funds are more directly linked to the money markets,” said a spokesperson for mortgage broker SPF Private Clients.

"Lenders have a few options: some will withdraw products intermittently to avoid taking on too much business, increase their rates to avoid being market leading, or withdraw from the market completely — such as Hodge Bank as of Wednesday, Keystone [Property Finance] as of Thursday, with more expected to follow," said Nicholas Mendes of mortgage broker John Charcol.

Lenders typically do their pricing two weeks in advance, which is why we’ve seen sudden changes on a weekly or daily basis, explained Mr Mendes.

“Lenders realise they had potentially overexposed themselves, as they became a market leader.”

With ongoing rate fluctuations expected, Mendes stressed the importance of buyers or remortgagers getting their documents and requirements together and across to their lender as quickly as possible to avoid delays and disappointment.

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