Five major banks hike fixed rate mortgages - why costs are rising

Five of Britain's biggest mortgage lenders are increasing rates, despite the Bank of England cutting interest rates last week.

Santander, TSB, HSBC, Virgin Money and Nationwide Building Society have all announced prices across their fixed rate mortgage deals will rise this week.

Last week, Nationwide, TSB and Santander were among a number of lenders to announce they were cutting mortgage rates across tracker and variable rate deals, in response to the Bank of England cutting base rate from 5 per cent to 4.75 per cent, on Thursday.

However, this week they are doing the opposite when it comes to fixed rate mortgage deals.

This will be a concern for mortgage borrowers given that the vast majority of households are on fixed rate deals.

Around 82 per cent of mortgaged households are on fixed rate mortgages, according to UK Finance. That equates to almost 7 million homes.

Most households are protected from any immediate rate changes until their current deal ends, but the Bank of England said in its November Monetary Policy Report that about 800,000 fixed rate mortgages, currently on rates of 3 per cent or less, will come up for renewal per year until the end of 2027.

Santander has announced increases of up to 0.29 per cent across its residential fixed rates for purchases and remortgages.

Alongside Santander, HSBC and TSB are also upping rates. HSBC won't reveal the changes until tomorrow. Meanwhile, TSB increased fixed rates by up to 0.3 per cent yesterday.

Nationwide also announced it will be increasing some of its fixed rates from tomorrow. 

Britain's biggest building society is increasing some of its two, three and five-year fixed rate products by up to 0.2 per cent.

It says these are reflective of the current swap rate environment and increase in mortgage rates seen across the market in recent weeks. 

And finally, this afternoon, Virgin Money announced it is increasing fixed rates today for home buyers, remortgages and buy-to-let by up to 0.25 per cent. These will come into effect from 8pm tonight. 

Why are banks increasing fixed rate mortgages? 

The hikes to rates may seem counterintuitive given the Bank of England's recent decision to lower the base rate to 4.75 per cent - the second reduction this year. 

Mortgage brokers believe this is likely due to the rising cost of funding as a result of heightened inflation expectations after the Labour Budget and Trump election win. 

Rohit Kohli, director at The Mortgage Stop told news agency, Newspage: 'Many borrowers will be left scratching their heads as to why, less than a week after the Bank of England cut the base rate by 0.25 per cent, lenders like TSB are increasing fixed rates. 

'The markets are still feeling the aftershocks of the Labour Budget. Although it wasn’t as disastrous as the mini-Budget, the longer-term cost of borrowing continues to rise. 

'Gilt yields and swap rates are reacting not only to budgetary policy but also to geopolitical uncertainties, including Trump’s re-election to the White House. Anyone holding out for big cuts in interest rates is taking a gamble for now.'

John Fraser-Tucker, head of mortgages at broker Mojo Mortgages said: 'While the Bank of England's decision to lower the Bank Rate last week might lead some to expect across-the-board reductions in mortgage rates, it's important to understand that the mortgage market doesn't always move in perfect sync with the Bank of England’s base rate decision.

'Fixed-rate mortgages, in particular, are influenced by a complex array of factors beyond just the Bank Rate. 

'These can include the lender's own funding costs, their view on future economic conditions, competitive positioning in the market, and even their internal goals for new business.'

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Fixed-rate mortgage pricing is also largely based on Sonia swap rates - the inter-bank lending rate, based on future interest rate expectations.

When Sonia swaps rise sufficiently it often results in fixed mortgage rates going up, and vice versa when they fall.

As of 8 November, five-year swaps were at 3.97 per cent and two-year swaps were at 4.19 per cent. 

Five-year swaps are up from  3.87 per cent on 29 October - the day before the Budget. They are up from 3.7 per cent on 24 October.

'Adding to the pressure, swap rates—key indicators used by lenders to price fixed-rate mortgages—have edged upward, further necessitating these adjustments,' says Nicholas Mendes, mortgage technical manager at John Charcol.

'The combination of market dynamics and rising swap rates highlights the difficult landscape borrowers are navigating.'

What should mortgage borrowers do? 

The advice to borrowers is simple: lock in a new fixed rate deal as soon as possible to avoid rates rising further.

A new mortgage offer often lasts for up to six months meaning homeowners can lock in a new rate well ahead of their current fixed rate deal ending. 

'For clients nearing the end of their fixed-rate terms, it’s essential not to delay in the hope that rates will revert to levels seen weeks ago,' said Mendes. 

'Securing a deal now provides certainty in an uncertain market. There is always the option to review and adjust if circumstances change but acting promptly minimises exposure to further rate increases.

'This development underscores the importance of staying informed and proactive when managing mortgage commitments in today’s rapidly shifting financial environment.'

How to find a new mortgage

Borrowers who need a mortgage because their current fixed rate deal is ending, or they are buying a home, should explore their options as soon as possible.

Quick mortgage finder links with This is Money's partner L&C

> Mortgage rates calculator

> Find the right mortgage for you 

What if I need to remortgage? 

Borrowers should compare rates, speak to a mortgage broker and be prepared to act.

Homeowners can lock in to a new deal six to nine months in advance, often with no obligation to take it.

Most mortgage deals allow fees to be added to the loan and only be charged when it is taken out. This means borrowers can secure a rate without paying expensive arrangement fees.

Keep in mind that by doing this and not clearing the fee on completion, interest will be paid on the fee amount over the entire term of the loan, so this may not be the best option for everyone. 

What if I am buying a home? 

Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be. 

Buyers should avoid overstretching and be aware that house prices may fall, as higher mortgage rates limit people's borrowing ability and buying power.

How to compare mortgage costs 

The best way to compare mortgage costs and find the right deal for you is to speak to a broker.

This is Money has a long-standing partnership with fee-free broker L&C, to provide you with fee-free expert mortgage advice.

Interested in seeing today’s best mortgage rates? Use This is Money and L&Cs best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

If you’re ready to find your next mortgage, why not use L&C’s online Mortgage Finder. It will search 1,000’s of deals from more than 90 different lenders to discover the best deal for you.

> Find your best mortgage deal with This is Money and L&C

Be aware that rates can change quickly, however, and so if you need a mortgage or want to compare rates, speak to L&C as soon as possible, so they can help you find the right mortgage for you. 

Mortgage service provided by London & Country Mortgages (L&C), which is authorised and regulated by the Financial Conduct Authority (registered number: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage