Mortgage rates may rise again as Santander and TSB increase interest rates on some of their fixed deals.
Santander, which temporarily withdrew some of its mortgage offers on Friday, confirmed they would return with higher interest rates.
Starting tomorrow, the bank will increase some fixed rates by as much as 0.22 percentage points.
Increases: Santander and TSB have announced plans to increase some mortgage rates
Also from tomorrow, TSB mortgage rates on five-year fixed deals aimed at first-time buyers and home movers will increase by up to 0.25 percentage points.
Two-year fixed rates will also increase by 0.1 percentage point.
For remortgaging homeowners, TSB is increasing interest rates on five-year deals by up to 0.25 percentage points.
Until last week, mortgage rates were falling. From the beginning of July to the end of last week, the cheapest available five-year fixed-rate mortgage fell from 4.28 percent. up to 3.68 percent
Meanwhile, the lowest two-year rate dropped from 4.68% to 3.84% during that time.
However, as of this week, the lowest five-year rate is now 3.79% and the lowest two-year rate is 3.99%.
Why are mortgage rates rising?
Mortgage lenders consider several things when setting a fixed mortgage rate, from borrower demand to overall economic sentiment and their own margins.
Swap rates are the simplest way to interpret the direction fixed rates may be heading.
Sonia swap rates are an interbank interest rate that essentially shows what lenders think the future will hold for interest rates.
When Sonia swaps rise appropriately, it often results in an increase in fixed mortgage interest rates and vice versa when they fall.
Sonia swaps have been rising again in recent weeks. As of October 10, two-year swaps were at 4.03% and five-year swaps were at 3.79%.
This is an increase from a month ago, when two-year swaps were at 3.74 percent and five-year swaps were at 3.38 percent.
It is rare for lowest fixed mortgage rates to fall below equivalent Sonia swap rates.
Chris Sykes, technical director at mortgage broker Private Finance, says he wouldn't be surprised if a few more lenders increase interest rates in the coming weeks.
“The margins that lenders get on interest rates have been paper thin over the last few weeks, and it's no surprise that lenders can't maintain them, which is why we're seeing some reversal and modest rate increases,” Sykes said.
“It's not panic stations, not all rates have shot up – it's just that some of the market-leading rates have moved up slightly, so we're back in time to where rates were about a month ago, not where they were four months ago.
“I don't see much larger interest rate cuts unless there is a base cut of more than 0.25% at the November MPC meeting or if there is really positive economic data that will significantly impact Sony swaps.
“In the short term, swaps are rising, so I wouldn't be surprised if we see a few more rate increases, but it should only be 0.1-0.2 percent, which shouldn't be enough to change the deal.”
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