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Barclays, HSBC, NatWest and TSB raise mortgage rates just hours after the Budget

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home - TMG
home - TMG

Four of Britain’s biggest lenders raised mortgage rates in the wake of Rishi Sunak's Budget in a move that will add as much as £400 to repayments.

Millions of borrowers face a sharp increase in their mortgage bills as banks and building societies scramble to get ahead of an anticipated interest rate rise by the Bank of England next week to combat surging inflation.

The decision to raise mortgage rates will squeeze household finances that are already suffering from a decade of stagnant wages.

Barclays, HSBC, NatWest and TSB announced mortgage rate increases just hours after the Chancellor’s Budget on Wednesday.

Barlcays increased its two-year fixed rate from 1.17pc to 1.52pc, increasing the cost on a typical £200,000 mortgage by almost £400 a year. Virgin Money added up to 0.2 percentage points on certain rates earlier this week, while Nationwide also increased the rates on some of its deals.

Fixed-rate mortgage borrowers will be protected from any rate rise until their term ends. However, banks have begun to raise the cost of taking on a new fixed deal for people buying a house or remortgaging.

Lenders are increasingly concerned that the Bank of England will lift its base rate from 0.1pc to 0.25pc at a meeting next Thursday, squeezing the profit they make from mortgages. The Bank is preparing to act to curb surging inflation, which experts believe may hit as much as 5pc in 2022.

Mark Harris, of the mortgage broker SPF Private Clients, said: “The markets have already factored in a rate rise, and maybe two or three by the end of 2022, with many lenders starting to increase the rates on their cheapest mortgages.”

Borrowers on variable rate mortgages, of which there are an estimated 2.2 million in the UK, will be hit hardest.

Rates for these homeowners are not guaranteed, unlike fixed-rate deals. The most common types are standard variable rate mortgages, which go up or down at the discretion of the lender, or trackers, which automatically follow the movement of the Bank of England's rate. Many households in flats with unsafe cladding have been forced on to a standard variable rate because they are unable to remortgage.

Standard variable rates are typically the most expensive type of mortgage, and experts have predicted rising interest rates would make the financial outlook of these borrowers much worse.

Borrowers currently locked into a fixed-rate mortgage will be cushioned from any immediate rise in interest rates.

However, analysts said that those who locked into super cheap deals this summer could be in for a shock when they come to remortgage.

Laura Suter, of AJ Bell, said: “Mortgage providers don’t hang around when it comes to passing on rate rises, so anyone on a tracker deal will see their costs go up immediately. Any shift higher may be the match in the powder barrel for some families.”.

Mr Harris warned a rate rise would be bad news for borrowers on a standard variable rate.

He said: “There is no guarantee that lenders will restrict any rise to the same amount as an increase in Bank base rate; the standard variable rate is set at the lender’s discretion so can rise by more than any increase in the official rate.”

The Office for Budget Responsibility (OBR) has forecast mortgage interest payments will rise by 13 per cent year-on-year by 2023, a jump not seen since before the housing crash in 2008.

A new analysis showed that homeowners could see their mortgage repayments rocket by almost 45 per cent, under the Treasury watchdog’s worst-case scenario for interest rate rises.

The OBR published, alongside its “central forecast”, a “deliberately stark” pessimistic forecast suggesting the Bank of England interest rate could rise to 3.5 per cent in 2023, up from 0.1 per cent at present.

The Institute for Fiscal Studies (IFS) said this “alternative scenario” would lead to an implied increase in mortgage interest rates to 5.4 per cent, up from 2 per cent at present.

In an analysis for The Daily Telegraph, the IFS showed this scenario would lead to homeowners paying thousands of pounds more each year.

It would see annual mortgage repayments soar 43 per cent from £10,800 to £15,400 on an average-price house (£264,244) with an 80 per cent loan-to-value mortgage over 25 years and a current interest rate of 2 per cent, according to the research.

The repayment on a £500,000 house with the same mortgage terms would rocket 44 per cent from £20,300 to £29,200, while on an £1 million house it would surge by the same proportion from £40,700 to £58,400.

Lib Dem leader Sir Ed Davey warned that the changes would hit the southern Tory shires hardest, because those seats tend to boast the highest house prices outside London.

He accused the Conservatives of “turning their back” on traditional party supporters who were “tired of being taken for granted”, as he called on ministers to “act now to defuse this mortgage timebomb”.

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