UK lenders are returning to the market with mortgage rates close to 6%

Leading UK banks are re-entering the mortgage market with rates close to 6 per cent after halting new fixed-rate home loans last week following turmoil in the UK government bond market.

Barclays, Skipton Building Society, NatWest, Virgin Money and Nationwide are among lenders raising rates on new mortgage deals after Chancellor Kwasi Kwarteng’s “mini” budget pushed up gilt yields just over a week ago Has.

According to data provider Moneyfacts, the median rate for two-year fixed contracts rose to 5.75 percent on Monday, up from 4.74 percent on the day of Kwarteng’s announcement on September 23.

The rise means rates for two-year fixed contracts are at their highest since December 2008, when rates were 5.80 percent.

Banks were forced to temporarily withdraw mortgages for new customers last week because of a surge in gilt yields, which they use to price fixed-rate mortgages.

Many banks are still waiting for markets to calm down before returning with new home loans, while some have returned with higher rates.

“We’ve had another busy day of rate hikes, with some of the largest lenders raising their rates and getting their cheapest deals,” said Aaron Strutt of brokerage Trinity Financial. “We were hoping that the corrections would stabilize, but for now they are on the up.”

According to Moneyfacts, 2,262 mortgage products were available to UK borrowers on Monday, up from 3,961 on the ‘mini’ budget day after lenders rushed to pull deals from the market.

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

Skipton, which withdrew mortgages for new customers last week, said it would return to the market on Tuesday with a new five-year fixed offering at higher interest rates, including a product for those with a deposit of just 5 per cent.

NatWest, which last week was the only lender to continue offering new mortgages at previous rates, made a series of rate hikes on home and rental products on Monday.

The bank said it has hiked rates by nearly 1.5 percentage points on some of its mortgage deals, raising concerns that borrowers will face steep increases in costs as their fixed-term mortgages expire.

According to the Bank of England, by the end of 2024 more than 2 million fixed-term borrowers will need to restructure their debt.

Ray Boulger of broker John Charcol said Monday the best fixed rate deal in two years was offered with a deposit of 40 percent 4.56 percent from Halifax. That compares to Skipton’s best rate of 3.57 percent three weeks ago.

Another sign of the turmoil in bond markets is that some lenders are now charging higher interest rates on two-year maturities than on five- or even 10-year mortgages, as wholesale borrowing is now cheaper for longer maturities rather than shorter maturities.

“NatWest’s new five-year rates for first-time buyers with a small deposit are actually better than the 40 percent rate for two years, which shows how insane the market is,” Strutt said.

Lenders’ decision to raise interest rates would likely slow home sales, said Dominic Agace, chief executive of Winkworth real estate agency.

“It happens every time mortgage rates go up,” Agace said. The slowdown is particularly pronounced when sales are at their peak during the pandemic, such as in the large country home market, he added.

Additional reporting by Siddharth Venkataramakrishnan

https://www.ft.com/content/20e649d8-4dd1-4e64-9075-cd0eef9f8fe4 UK lenders are returning to the market with mortgage rates close to 6%

Adam Bradshaw

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