Brokers feel the changes go far beyond the Bank of England base rate rises and are now asking: “When will it stop?”
As of yesterday (July 12), 41 lenders offered two-year fixed rate mortgages at an initial rate of 4 per cent or higher, and 45 lenders offered the same for five-year fixed rates, according to Moneyfacts.
It’s going beyond base rate rises now.Aaron Strutt, Trinity FinancialBanks with 4 per cent rates include Santander, TSB, Lloyds Bank, Halifax, and Barclays.
The average overall two-year fixed rate rose for a ninth consecutive month in June, increasing by 0.49 per cent month-on-month.
The average rate still sits below 4 per cent this month, at 3.74 per cent. But it is the highest average rate Moneyfacts has recorded in more than nine years (March 2013: 3.80 per cent).
“Banks are withdrawing products and raising interest rates at a rapid pace. When is it going to stop?," asked director at broker Trinity Financial, Aaron Strutt. “It’s going beyond base rate rises now.”
Santander for Intermediaries introduced rate hikes of up to 0.55 per cent for some of its mortgages last week, creating a “rush of applications” to secure the rates according to Strutt.
“One of our clients mentioned that he wanted to wait until the weekend to decide if he wanted to take one of Santander’s mortgages,” he explained.
“Once we found out the rate he was considering was going up, we alerted him, and he gave us permission to submit his application. His mortgage would have been 0.5 per cent more expensive if his application was not submitted that day.”
The bank said it is raising rates “in line with market conditions”. Mortgage providers take into account a number of factors when raising rates, including funding, swap rates, pricing pressures from competitors, and service levels, among other things.
One key driver cited by banks has been the rising base rate. It has been raised five times since September by the Bank of England, and now sits at 1.25 per cent - the latest rise coming into effect in June.
In the period between December 2021 and July 2022, the base rate has risen by 1.15 per cent. Over the same period, the average overall two-year and five-year fixed rates have risen by 1.40 per cent and 1.25 per cent, respectively.
‘Next base rate will be half a per cent’
Some brokers reckon the mortgage industry is peddling itself into the realms of higher interest rates all on its own.
“It’s a self-fulfilling spiral,” said Mansfiled-based broker, Lewis Shaw.
“As an industry, rates are higher than they needed to be because we’re scrambling to get to the top of the sourcing levels.
“Service levels go through the floor, then this puts people and advisers off the right priced mortgage. Portals are crashing under volume. It puts you in a dicey position with clients.”
Shaw said at some point, the Bank of England will need to “get a grip” on the UK economy. Base rate rises are used to cool inflation, which is tipped for 10 per cent this year, 8 percentage points above the central bank’s target.
The UK economy returned to growth in May, 0.4 percentage points above expectations. But inflation still sat at a 40-year high of 9.1 per cent.
“The next base rate rise will be half a per cent, I’d bet on that. The market sentiment is that ‘a quarter of a per cent is doing sod all’,” said Shaw.
Product choice fallen ‘notably’
Choice of mortgage products fell “notably” this month, falling from 4,987 to 4,556 between June and July, according to Moneyfacts.
Finance expert at Moneyfacts, Eleanor Williams, said the dip in mortgage deals was a result of mortgage lenders continuing to revise their ranges in the face of ongoing economic uncertainty.
“We have seen some providers pull selected products, while others have withdrawn whole sectors of, or indeed their entire ranges, from the market temporarily,” she said.
“Compared to last month, total availability has reduced by a notable 431 deals to leave 4,556 mortgage products on offer to borrowers this month.
“This is just 44 more deals than were available this time last year.”
With product ranges condensing, Williams said average fixed rates have continued on an upwards trajectory, with two and five-year fixed averages at all loan-to-value (LTV) tiers rising this month.
ruby.hinchliffe@ft.com
