Mortgage lenders have gradually reduced rates in recent months after the ceasefire. But with oil prices back on the rise due to further turmoil in the Middle East, companies such as Coventry Building Society, Barclays, Nationwide and NatWest announced price rises last week.
It has emerged today that Barclays will raise interest rates tomorrow by up to 0.20%, Halifax will raise rates by a similar amount and HSBC will also raise rates.
Meanwhile, TSB is raising residential prices, and Skipton Building Society has also increased its fixed price range.
This comes after the United States carried out its ninth consecutive night of strikes on Iran. With this mounting turmoil comes the threat of higher prices at the pump, and this increases the possibility of higher inflation, which fuels mortgage pricing.
Swap rates, which influence lenders’ rates, have been rising since tensions escalated in the Middle East, said Nicholas Mendes, technical director of mortgages at John Charcol.
“Lenders price swaps, not the bank rate, so this simply catches up with funding costs already,” he explained. “When a prominent lender like Halifax moves in, the rest of the market tends to fall in line within days.”
Will interest rates rise?
While fixed rate pricing is not directly affected by the Bank of England’s base rate, lender activity on fixed rate pricing can often be an indicator of what will happen to interest rates.
Does this wave of price hikes ahead of the next decision on July 30 bode poorly for the bank interest rate?
“The vote split was skewed toward hawkishness, with two members already in favor of an immediate rate hike to 4%,” Mendes said. “My money is still on hold, but the debate within the MPC tells you which way the risk is skewed, and a rise, at this meeting or the one in September, seems more likely than a cut.”
How will these reductions affect your mortgage?
Those taking out a new mortgage or remortgage will now feel the impact of these rate cuts.
According to Mendes, an increase of 0.20% on a typical £200,000 mortgage over 25 years adds up to around £23 a month, or roughly £276 a year. On a £300,000 mortgage, the same increase adds approximately £35 a month, so roughly £420 a year.
“It’s not a dramatic jump per se, but it’s the third or fourth such step in a matter of weeks, and each step piles on to the last for anyone still shopping,” he said.
If your deal is due to expire within the next six months, his advice is to book it now. Most lenders will let you switch to something cheaper if rates improve before closing, he explained.
Using a broker is also a good idea as he will know of any price changes in advance and can advise you accordingly.
Mendes’ guidance has been echoed by several other mortgage experts including Katie Eatenton, mortgage and protection specialist at St Albans-based Eatonton FinancialThis was in an interview with the news agency.
“The mortgage price war ended just as quickly as the ceasefire,” she said. “Those borrowers who were waiting for interest rates to fall took a gamble, and many of them will lose.”
“Time is now of the essence to get your ducks in a row and secure the lowest prices and products available.
“What is happening to mortgage pricing highlights once again the importance of stabilizing the interest rate rather than relying on it to continue falling. Because this is not guaranteed.”
