Rises would be ‘catastrophic’ for homeowners, warn mortgage brokers
ByRachel Mortimer29 October 2021 • 1:48pm
Brokers warned the record low interest rates which borrowers have enjoyed this year are "very much behind us" after more banks increased the cost of their fixed-rate deals this morning.
A good rate on a two-year deal is currently 1pc. If that were to double, a borrower with a £200,000 mortgage would pay an extra £1,128 a year.
Barclays no longer offers any mortgages below 1pc and has raised rates on almost all of its loans for borrowers with a 15pc deposit or greater. TSB also withdrew all of its three-year fixed deals today and increased others by up to 0.4 percentage points.
Simon Gammon, of Knight Frank Finance, a mortgage broker, warned the best mortgage deals were on "borrowed time".
"The changes in rates now may be small, but it is indicative of a wholesale tide change coming down the track," he said.
"If you took out a two-year fixed mortgage in the past 12 months, it would likely be at a rate of around 1pc. It would not be unreasonable to conceive that the rate would be back up to 2pc or higher when you came to choose another loan. It will mean your interest rate will have at least doubled."
Millions of borrowers are facing an immediate increase in their monthly outgoings with major lenders increasing rates in anticipation of the Bank of England raising Bank Rate next week.
Mr Gammon said: "If you look at past history, a Bank Rate rise almost immediately triggers higher mortgage rates for borrowers."
The Bank is expected to make the first of a series of interest rate increases, with forecasts expecting the Bank Rate will reach at least 1pc by the end of 2022.
Dominik Lipnicki, of Your Mortgage Decisions, a broker, said: “Even a 1 percentage point increase in the Bank Rate would leave many on fixed-rate mortgages very worried about what they will do when their deal comes to an end.
“If you believe the predictions by some that the Bank Rate could increase to 2pc or 3pc, that would be catastrophic for homeowners.”
The underlying rates which determine how banks price their fixed-rate mortgages have steadily climbed in recent months.
Called “swap rates”, these register the price at which banks secure capital in the market, which they in turn package up and lend out to households as fixed-rate mortgages. An increase in the swap rate generally leads to a rise in the interest rates charged to customers, and vice versa.
At the beginning of September the two-year swap rate sat at 0.49pc and the five-year rate at 0.72pc. By the day of the Budget, these had risen to 1.09pc and 1.20pc respectively.
Mr Lipnicki added: "Increases to mortgage rates are very likely to remain sustained in the coming months.
"Even a modest rise in interest rates will mean a significant increase in monthly payments for borrowers."
Barclays, HSBC, NatWest and TSB announced mortgage rate increases just hours after the Chancellor’s Budget on Wednesday. There were 131 deals below 1pc at the start of the month, falling to 93 last week with brokers now expecting sub-1pc mortgages to disappear entirely by Christmas.
Mr Gammon said: "This is the lowest mortgage costs are likely to be for some time. It is really key for borrowers whose fixed-rate deals are coming to an end in the next six month to look at their next mortgage now.
"There is a window of opportunity before Christmas to approach a lender or broker and book in a good rate now, as the offer will hold for six months."