Borrowers should brace themselves for a wave of steep mortgage rate increases over the next few days as all the main lenders are expected to raise the cost of loans.
Brokers believe five-year fixed rates will be hit hardest, but two and three-year deals are also likely to rise.
“There is no question that fixed rates will go up,” said Ray Boulger, senior technical manager at John Charcol. “I would be surprised if any of the main lenders did not put rates up over the next week.”
Fixed mortgage rates have been rising for the past few weeks as banks have had to pay more for funds, even though the base interest rate has stayed low. But a sudden jump in swap rates – which determine the cost of fixed-rate lending – has accelerated the trend.
Nationwide Building Society yesterday increased rates by as much as 0.86 per cent, one of the sharpest rises in at least a year. Its popular five-year rate, which is only available to borrowers with a deposit of 40 per cent, has risen from 4.98 per cent to 5.84 per cent. Yorkshire Building Society and Northern Rock have also increased rates.
Borrowers wanting to lock into a cheap mortgage deal while base rates are low could now miss the best rates. David Hollingworth at London & Country Mortgages said two-year fixed rates were still available below 3 per cent. First Direct, for example, has a two-year deal of 2.99 per cent on a maximum loan-to-value of 75 per cent. But these deals could be withdrawn in coming weeks.
Brokers are also advising borrowers to go for longer-term rates for greater security – although these will cost more. The best five-year rates are around 4.5 per cent and most are closer to 4.75-5 per cent.
Hollingworth said this was expensive compared with the rates of a few months ago. “We had five-year rates below 4 per cent three months ago, which now looks a very good deal for borrowers,” he said.
Boulger expects Lloyds Banking Group, which owns the Halifax brand, to raise rates imminently and believes other large lenders, including Abbey and Woolwich will follow suit.
There is concern that the rising trend of mortgage rates could upset the recent fragile recovery in the housing market.
