Mortgage lenders raise rates amid uncertainty over BoE interest rate cuts

Yahoo

2 days ago

Many of the major lenders raised their mortgage rates this week, amid uncertainty over the pace of future interest rate cuts by the Bank of England.
The average rate for a two-year fixed mortgage stands at 4.89%, while five-year fixed deals average 5.09%, according to data from Uswitch.
Comments by Bank of England governor Andrew Bailey at a cross-party Treasury select committee session on Tuesday over the impact of US president Donald Trump's tariffs on policymaking cast more doubt over the central bank's pace of rate cuts.
Bailey said that while the interest rate "path remains downwards, but how far and how quickly is now shrouded in a lot more uncertainty, frankly.'
The Bank of England has cut interest rates from 4.5% to 4.25% in early May, meaning the average homeowner on a tracker mortgage will see their monthly repayments fall by nearly £29, after the quarter-point snip to the base rate.
However, the primary inflation measure, the Consumer Price Index (CPI), stood at 3.5% in the 12 months to April, a higher-than-expected increase from the previous month. That means price increases are moving away from the BoE's 2% target.
This week, no major lender cut rates, with the majority hiking mortgages for first-time buyers as the market moves away from the mini price war that pushed deals deep into under-4% territory.
HSBC (HSBA.L) has a 4.01% rate for a five-year deal, which is up from the previous week. For those with a Premier Standard account with the lender, this rate is 3.98%.
Looking at the two-year options, the lowest rate is 3.96% on a Premier Standard account with a £999 fee, slightly higher from the previous week.
Both cases assume a 60% loan-to-value (LTV) mortgage, meaning buyers need to have at least 40% for a deposit.
HSBC offers 95% LTV deals, meaning you only need to save for a 5% deposit. However, the rates are much higher, with a two-year fix at 5.05% or 4.89% for a five-year fix.
This is because their financial situation and deposit size determine the rate someone can get. The larger the deposit, the lower the LTV, allowing buyers to access better deals because lenders consider them less risky.
NatWest's (NWG.L) five-year deal is 3.99% with a £1,495 fee, which is unchanged from last week.
The cheapest two-year fix deal is 3.94%, which is also unchanged from last week. You'll need at least a 40% deposit to qualify for the rates in both cases.
At Santander (BNC.L), a five-year fix is 4.08% for first-time buyers, higher than the previous 3.93%. It has a £999 fee, assuming a 40% deposit.
Read more: Average first-time buyers in London need almost £140,000 for a deposit
For a two-year deal, customers can also secure a 4.01% offer, with the same £999 fee, higher than the previous 3.90%.
Barclays (BARC.L) was the first among major lenders to bring back under-4% deals and currently has a five-year fix at 3.99%, which is slightly higher than 3.89% last week. For "premier" clients, this rate dips to 3.98%.
The lowest for two-year mortgage deals is 3.97%, which is also up on 3.87% last week.
Barclays has launched a mortgage proposition to help new and existing customers access larger loans when purchasing a home. The initiative, known as Mortgage Boost, enables family members or friends to effectively "boost" the amount that can be borrowed toward a property without needing to lend or gift money directly or provide a larger deposit.
Read more: Best credit card deals of the week
Under the scheme, a borrower's eligibility for a mortgage can increase significantly by including a family member or friend on the application. For example, an individual with a £37,500 annual income and a £30,000 deposit might traditionally be able to borrow up to £168,375, enabling them to purchase a home priced at around £198,375.
However, with Mortgage Boost, the total borrowing potential can rise substantially if a second person, such as a parent, joins the application. In this case, if the second applicant also earns £37,500 a year, the combined income could push the borrowing limit to £270,000, enabling the buyer to afford a home worth up to £300,000.
Nationwide (NBS.L) offers a five-year fix at 4.24%, with a £999 fee and a 40% deposit and was down from 4.34% last week.
Nationwide offers a two-year fixed rate for home purchase at 4.04% with a £999 fee — also for borrowers with a 40% deposit. Again, down from 4.34% in the previous week.
The lender has announced it is changing the eligibility criteria for its mortgage scheme, which allows people to borrow up to six times their income.
The minimum income required to take out a Helping Hand mortgage has been reduced to £35,000 — meaning more people will be eligible for the scheme. The minimum income requirement for joint applications will remain at £55,000.
Helping Hand mortgages enable people to borrow up to six times their income, meaning potential homeowners can borrow 33% more compared to Nationwide's standard lending at 4.5 times income.
Halifax, the UK's biggest mortgage lender, offers a five-year rate of 4.03% (also 60% LTV).
The lender, owned by Lloyds (LLOY.L), offers a two-year fixed rate deal at 4%, with a £999 fee for first-time buyers.
Read more: How to negotiate house prices
It also offers a 10-year deal with a mortgage rate of 4.78%.
The lender has announced the launch of a new 1.5-year fixed-rate remortgage product in response to growing demand among borrowers for shorter-term deals.
Shorter-term fixes offer certainty over monthly payments while allowing households to switch to a new deal sooner to take advantage of lower rates.
As providers start hiking rates, prospective homeowners are quickly running out of good options. HSBC's (HSBA.L) 3.98% is currently the cheapest deal for five-year fixes and for two-year fixes at 3.96%, though access requires a hefty 40% deposit.
The average UK house price is £273,427, so a 40% deposit equals about £120,000.
A growing number of homeowners in the UK are opting for 35-year or longer mortgage terms, with a significant rise in older borrowers stretching their repayment periods well into their 70s.
Read more: UK house prices rise in May as higher wages, low unemployment boost market
Lender April Mortgages offers buyers the chance to borrow up to seven times their income on loans fixed for five to 15 years. Both those buying alone and those buying with others can apply for the mortgage.
As part of the independent Dutch asset manager DMFCO, the company offers interest rates starting at 5.15% and an application fee of £195.
Skipton Building Society has also said it would allow first-time buyers to borrow up to 5.5 times their income to help more borrowers get on the housing ladder.
Leeds Building Society is increasing the maximum amount that first-time buyers can potentially borrow as a multiple of their earnings with the launch of a new mortgage range. Aspiring homeowners with a minimum household income of £40,000 may now be able to borrow up to 5.5 times their earnings.
Mortgage holders and borrowers have faced record-high repayments in recent years, as the Bank of England's base rate has been passed on by banks and building societies.
According to UK Finance, 1.3 million fixed mortgage deals are set to end in 2025. Many homeowners will hope the Bank of England acts quickly to cut rates more aggressively. At the same time, savers will likely root for rates to remain at or near their current levels.
Read more:
Best credit card deals of the week
UK mortgage approvals drop for third month in a row
How next week's spending review could impact your finances