Barclays is set to increase its mortgage rates by 0.1 percentage points on a number of its leading deals, effective tomorrow. This includes a two-year fixed rate for those with a 40 percent deposit, which will rise from 3.75 percent to 3.85 percent, leading to a monthly payment increase from £1,029 to £1,039 on a £200,000 mortgage. Similarly, its five-year fixed rate for home buyers will go from 3.95 percent to 4.05 percent. These changes are in response to rising swap rates and Britain's long-term government borrowing costs hitting a 27-year high, prompting fears of a broader upward trend in mortgage rates.
Mortgage brokers are advising homeowners and buyers to secure new deals as quickly as possible to mitigate potential increases. Aaron Strutt from Trinity Financial noted that rising swap rates have signaled these increases, and high gilt yields are likely to further impact mortgage rates. He stressed the importance of locking in rates now to avoid market instability, referencing the significant rate hikes seen in September three years prior.
The current market volatility is also influenced by rising inflation, which has remained stubborn at 3.8 percent, well above the Bank of England's 2 percent target. This has dampened hopes for interest rate cuts this year, with predictions now pointing to March or April of next year for any potential reductions. Lenders are expected to make quiet adjustments to fees and cashback rather than offering significant rate cuts.
Some borrowers are opting for tracker mortgages as a short-term strategy, particularly those with no early repayment charges, to gain flexibility before potentially switching to a fixed rate if rates fall. For example, Co-operative Bank offers tracker mortgages at 4.34 percent for 60 percent loan-to-value and 4.64 percent for 70 percent loan-to-value, both without early repayment charges. However, this strategy exposes borrowers to further rate increases, and some experts note a lack of awareness about tracker mortgages among first-time buyers.
The overall sentiment among financial experts is that the current economic climate, marked by sticky inflation and rising borrowing costs, suggests that mortgage rates are more likely to increase than decrease in the coming weeks. Borrowers are therefore strongly encouraged to act promptly to secure favorable rates for remortgaging or new purchases.
