Four major mortgage providers are all raising interest rates at the same time: here’s why more may follow…

Major banks have started raising mortgage rates in response to renewed economic uncertainty.

From tomorrow, Santander will increase rates for home buyers and people refinancing their mortgages by up to 0.34 percentage points for some products.

Fixed mortgages for those buying new-build homes will also increase by up to 0.2 percentage points and fixed interest rates for fixed buy-to-let agreements will increase by up to 0.15 percentage points.

Currently, Santander offers five-year fixed rates from 4.14 percent and two-year fixed rates from 4.2 percent.

Someone with a mortgage rate of 4.14 per cent on a £200,000 mortgage with 25 years to go would pay £1,111 a month.

Santander’s best fares are likely to start from a higher base from tomorrow as they are close to market leading.

Justin Moy, director of EHF Mortgages, told news agency Newspage: “This move by Santander was inevitable.

‘Now that swap rates are rising and most lenders are working with small margins, they have little choice but to increase fixed rates.

“Any hopes of a rate war have clearly been dashed as the government has knocked that opportunity out of the park.”

HSBC is also increasing rates on its fixed-rate mortgages aimed at homebuyers, refinancing mortgage providers and buy-to-let landlords.

This will almost certainly also result in the removal of some of the best rates on the market, although HSBC won’t announce its changes until tomorrow.

HSBC customers have until tonight to secure the market-leading two-year fix of 4.2 per cent for those who buy with a deposit of 40 per cent or more. People taking out a new mortgage are also likely to see HSBC’s two-year 4.26 per cent fix disappear.

Landlords looking to buy or remortgage properties are also likely to see some of the best rates disappear overnight.

HSBC is currently offering a five-year, fixed rate buy-to-let deal of 4.06 per cent with a product fee of £3,999 for those refinancing at a 75 per cent loan-to-value or 3.96 per cent for those taking a 60% loan percent can manage. -to-value.

An interest rate of 3.96 per cent on a £200,000 mortgage would equate to monthly payments of £660.

In addition to HSBC and Santander, TSB and Leeds Building Society also announced interest rate increases today.

Ken James, director at Contractor Mortgage Services, said: ‘The direction mortgage rates are heading is certainly upward.

‘Faced with a growing storm of bad economic news and extreme market volatility, lenders are beginning to batten down the hatches and barricade themselves.

“We had hoped for a promising start to 2025, but that simply did not materialize.”

Why are mortgage rates rising?

This week, government borrowing costs rose to the highest level in more than a quarter of a century, driven in part by a global bond sell-off and Labor Chancellor Rachel Reeves’ budget plan to borrow and spend more while raising taxes on businesses were increased. .

After trending upward since early December, 30-year government bond yields reached their highest level since 1998, while 10-year government bond yields reached their highest level since the financial crisis.

Although they have fallen slightly over the past two days, this has had knock-on effects on the money markets, with Sonia swap rates also rising.

Sonia swap rates reflect lenders’ expectations of future interest rates and play a crucial role in the pricing of fixed-rate mortgages.

Swaps have been on the rise over the past month, but fixed-rate mortgages have largely continued to follow suit – to this day.

A month ago, five-year swaps were 3.8 percent and two-year swaps were 4 percent.

But as of today, five-year swaps have risen to 4.17 percent and two-year swaps to 4.29 percent.

During that time, the lowest fixed rate mortgages have not risen, meaning the lowest fixed rate mortgages are currently below their equivalent swaps – something that is incredibly rare.

Nicholas Mendes, mortgage technical manager at John Charcol, believes there is no reason to panic and expects the wave of rate hikes to be just a blip.

He said: ‘Overall there has been a significant increase in the number of swaps so that lenders can continue to maintain their prices to the extent that they have been doing so, and these recent increases among the major lenders are essential to securing their margins and service levels.

‘This does not mean that we are heading into a tough period of continued increases. I am confident that if markets hold, we will see a reversal of the current rate hikes.”

Simon Gammon, managing partner at Knight Frank Finance, is slightly less optimistic.

He said: ‘It is clear that lenders believe that early 2025 will see another period of sluggish activity in the housing market.

“As things stand, this is likely to prove true. Some major lenders have said they would increase the cost of some mortgage products.

‘That will likely prompt others to follow suit, which will be disappointing for anyone looking to buy a house or take out a new mortgage in the coming months.

‘That said, reasonably positive inflation data from both Britain and the US have calmed bond markets this week, suggesting we will see a rapid rate repricing, rather than weeks of sustained mortgage rate increases.’