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UK mortgage costs set to jump amid further interest rate hikes

Residential living in North London, UK Mortgage
Mortgage rates warning with homeowners told to brace for 5% interest rates in months. Photo: Getty

UK mortgage holders face further hikes to their annual bills as lenders push up fixed rates amid market turmoil.

Nationwide (NBS.L) has said interest rates on new fixed-rate mortgages will rise 0.45 percentage points. It follows moves by lenders such as Halifax, Santander (BNC.L) and Atom Bank who also upped their rates by up to 0.2 percentage points.

Virgin Money (VMUK.L) said it was increasing some of its fixed rate products by up to 0.12%. The lender also announced selected product transfer fixed rates will be increased by up to 0.10%.

Households looking for a new mortgage deal have been warned to expect 5% or more fixed-rate deals in the coming weeks.

A household with an expiring 2.99% deal on a £150,000 mortgage would see costs rise by £175 a month or £2,100 a year if the new deal was priced at 5.19%.

It comes amid expectations the Bank of England will have to raise interest rates higher than previously thought.

Read more: UK house prices rise as agreed sales jump

Official figures showed UK inflation in April slowed to 8.7%, with core inflation — which strips out volatile factors such as food and energy — at a 31-year high.

Markets now think the Bank of England will have to raise rates above their current level of 4.5% to as high as 5.5% to bring down inflation.

Since the inflation announcement swap rates — the mechanism most lenders use to set their fixed rates — have increased and this is being fed through to mortgage pricing.

Nick Mendes, mortgage technical manager at broker John Charcol, said that he doubted there would be any two-year fixed-rate mortgages and probably few five-year deals priced at less than 5% in the coming weeks, as lenders are forced to reprice their mortgages upwards.

The average two- and five-year fixed-rate mortgages are now 5.63% and 4.80% respectively, according to Uswitch data.

Rates (23rd May)

Rates (30th May)

% change from last week

Two-year fixed-rate mortgage (75% LTV)

5.29%

5.63%

+0.34%

Five-year fixed-rate mortgage rate (75% LTV)

4.64%

4.80%

+0.16%

Two-year variable-rate mortgage rate (75% LTV)

5.14%

5.09%

-0.05%

Two-year fixed-rate mortgage (90% LTV)

5.21%

5.25%

+0.04%

Standard variable rate (SVR)

7.75%

7.75%

-

If the Bank of England base rate were to rise from its current level of 4.5%, the monthly repayments made by those with tracker mortgage would rise immediately.

Standard variable rates (SVR) may follow, though some lenders may choose not to pass on interest rate rises from the Bank of England.

SVRs are typically paid by borrowers who have come to the end of a fixed or discount-rate deal and are set at the discretion of lenders.

Rightmove’s mortgage expert Matt Smith said: “It’s early days, but we’ve seen the first major lender significantly increase rates and it’s likely that we’ll see other lenders follow suit, though the full impact may take a few weeks to filter through.

“An increase in fixed-rates was likely to happen following the news earlier in the week that inflation had not fallen as much as markets had predicted.”

“Subsequently the underlying costs of mortgages to lenders has increased and it appears they’re now starting to pass this on through their fixed-deals. We’ve seen average rates creep up from where they were earlier in the week and we expect some further increases in the coming weeks.”

Nearly 800 mortgage deals have been pulled from the market amid rising concerns over higher interest rates.

The number of residential mortgages has fallen by 373 to 5,012 since the start of last week, while the number of buy-to-let mortgages has fallen by 405 deals to 2,343

Several providers have withdrawn selected fixed mortgage products in recent days and some have pulled their whole fixed rate range, Moneyfactscompare.co.uk said.

Read more: UK savers missing out on hundreds of pounds amid 'measly' bank rates

The choice of mortgage products is still more than double the 2,258 deals counted in October last year, when many products vanished amid market turmoil following the mini-Budget.

Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said: “Borrowers searching for a new deal may well be concerned about the latest developments in the mortgage market.

“Over the past few days, we have seen a few lenders withdraw selected fixed products, with some pulling out of the market, at least temporarily.

“Product choice has started to fall, and as may be expected, average fixed mortgage rates are on the rise.

“This volatility is down to the concerns surrounding future interest rate hikes, and lenders are reassessing their propositions.

Watch: How does inflation affect interest rates?

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