UK: Mortgage rates will “double in a matter of months”

The best mortgage interest rates could increase by next year, as lenders pull the best deals from the market to counter inflationary fears.

Brokers warn that record-low interest rates enjoyed by borrowers this year are “very much behind” as more banks raised the price of their fixed-rate deals this morning.

Current rates are 1pc for a 2-year agreement. A borrower with a £200,000 loan would have to pay an additional £1,128 per year if that rate were to increase.

Barclays has stopped offering mortgages below 1pc and has increased rates on nearly all its loans to borrowers who have a minimum of 15pc deposit. TSB also pulled all three-year fixed contracts and increased some by up to 0.4 per cent.

Simon Gammon, Knight Frank Finance’s mortgage broker, said that the best mortgage deals are on “borrowed money”.

He said that although the rate changes are not significant, they indicate a general trend toward a tide shift.

“If you have taken out a 2-year fixed mortgage within the last 12 months, it will likely be at around 1pc. You can easily imagine that your rate will rise to 2pc or more if you choose another loan. This will result in your interest rate being at least twice as high.

Millions of borrowers face an immediate rise in monthly outgoings as major lenders raise rates in anticipation of the Bank of England raising Bankrate next week.

Mr Gammon stated that a rise in the Bank Rate almost immediately triggers higher mortgage rates.

The Bank will likely make the first in a series to increase interest rates. Forecasts predict that the Bank Rate will rise to at least 1pc by 2022.

Dominik Lipnicki of Your Mortgage Decisions, an agent, stated: “Even a one percentage point increase in Bank Rate would leave many fixed-rate mortgage holders very concerned about what they will do when the deal ends.”

“If you believe that the Bank rate could rise to 2pc or 3, that would be catastrophic news for homeowners.”

In recent months, the underlying rates that determine how banks price fixed-rate mortgages have been steadily increasing.

These are also known as “swap rates”, and they indicate the price banks pay to secure capital on the market. They then package up the money and lend it out to households in fixed-rate mortgages. A rise in swap rates generally means an increase in customer interest rates.

The two-year swap rate was 0.49pc at the start of September, and 0.72pc at the end. These rates had risen to 1.09pc & 1.20pc by the Budget day.

Lipnicki said that “increases in mortgage rates are very likely will remain sustained over the next months.”

“Even a slight rise in interest rates will result in a significant increase of monthly payments for borrowers.”

Just hours after Wednesday’s Chancellor’s Budget, Barclays, HSBC and NatWest announced mortgage rate hikes. There were 131 deals below 1pc as of the beginning of the month. This number fell to 93 last week. Brokers now expect sub-1pc mortgages will disappear completely by Christmas.

Mr Gammon stated that “this is the lowest mortgage cost likely to be for a while.” It is crucial that borrowers who have fixed-rate mortgages ending in the next six months take a look at their next mortgage.

“There’s still time to contact a broker or lender before Christmas and get a good rate. The offer will be valid for six months.”

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