UK lenders return to market with mortgage rates near 6%

Major British banks are re-entering the mortgage market with interest rates at nearly 6 percent, after halting new fixed-rate mortgage lending last week due to turmoil in the UK government bond market.

Barclays, Skipton Building Society, NatWest, Virgin Money and Nationwide are among the lenders that raised rates on new mortgage deals in the wake of the chancellor. by Kwasi Kwarteng Budget “mini” just over a week ago, which sent gilt yields soaring.

The average rate on fixed two-year contracts rose to 5.75 percent on Monday, from 4.74 percent on the day of Kwarteng’s announcement on Sept. 23, according to data provider Moneyfacts.

The increase means rates on fixed two-year deals are at their highest level since December 2008, when rates were 5.80 percent.

Banks They were forced to temporarily withdraw mortgages for new customers last week due to the sharp rise in yields on gilt, which they use to price fixed-rate mortgages.

Many banks are still waiting for the markets to stabilize before coming back with new home loans, while some have come back with higher rates.

“We’ve had another busy day of rate hikes with some of the biggest lenders raising their prices and taking out their cheapest offers,” said Aaron Strutt of broker Trinity Financial. “We expected corrections to stabilize, but at the moment they are going up.”

There were 2,262 mortgage products available to UK borrowers on Monday, up from 3,961 on “mini” budget day, according to Moneyfacts, after lenders rushed to withdraw offers from the market.

Barclays told brokers late Monday that it would raise rates on certain residential and buy-to-let deals beginning Tuesday.

Skipton, which withdrew mortgages for new customers last week, said it would return to the market with a new five-year fixed range on Tuesday at higher rates, including a product for people with just a 5 percent deposit.

NatWest, which last week was the only lender to continue offering new mortgages at previous rates, on Monday made a series of rate increases on residential and buy-to-let products.

The bank said it had raised rates by almost 1.5 percentage points on some of its remortgage deals, fueling concerns that borrowers face steep cost increases when their fixed-term mortgages expire.

According to the Bank of England, more than 2 million borrowers with fixed-term products will need to remortgage between now and the end of 2024.

Ray Boulger of broker John Charcol said on Monday the best fixed-rate offer for two years with a 40 percent deposit was the 4.56 percent offered by Halifax. This compares with Skipton’s best rate of 3.57 per cent three weeks ago.

In another sign of the turmoil in bond markets, some lenders are now charging higher interest rates on two-year mortgages than on five- or even 10-year mortgages, as wholesale loans are now cheaper to buy. longer-term than short-term financing.

“NatWest’s new rates for low deposits, five years and first-time buyers are actually better than the fixed 40 percent two-year rate, which shows how crazy the market is,” Strutt said.

Lenders’ decision to raise rates is likely to dampen property sales, said Dominic Agace, chief executive of real estate agency Winkworth.

“It’s what happens every time there’s a rise in mortgage rates,” Agace said. The slowdown would be particularly marked where sales have peaked during the pandemic, such as in the market for large cottages, he added.

Additional reporting by Siddharth Venkataramakrishnan

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