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UK Mortgages: First-time buyers face new rates hike

Households looking for new mortgages have been warned to expect 5%-plus fixed-rate deals in the coming weeks after Wednesday’s inflation figures sent the money markets back into turmoil.

Nick Mendes, the mortgage technical manager at the broker John Charcol, said on Thursday that he doubted there would be any two-year fixed-rate mortgages and probably few five-year deals priced at less than 5% in the coming weeks as lenders are forced to reprice their mortgages upwards.

Within hours of his comments, one of the UK’s biggest lenders, Nationwide, said it was increasing selected fixed and tracker rates by up to 0.45% from Friday.

The prospect of 5% mortgages would be a further blow to potential first-time buyers and households hoping to remortgage their existing deal. It is the latest turn in what is fast becoming a year of mortgage turmoil.

A household with an expiring 2.99% deal on a £150,000 mortgage would have to find an extra £175 a month or £2,100 a year if the replacement was priced at 5.19% – on top of recent food price increases of nearly 20%.

The publication on Wednesday of April’s annual inflation figure of 8.7% – higher than expected – prompted a sharp sell-off on the London stock market, raised the prospect of a 13th interest rate rise by the Bank of England, and pushed swap rates further upwards. The cost of fixed-rate mortgages is largely determined by the swap rates paid by lenders.

“In the current economic environment, swap rates have continued to fluctuate and, more recently, increase, leading to rate rises across the market. This change will ensure our mortgage rates remain sustainable,” a Nationwide spokesperson said.

With Britain likely to experience a long period of high inflation and weak growth – labelled stagflation – investors sold UK government bonds, or gilts, depressing the price and raising the interest rate.

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