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Last sub-4pc mortgage deal to disappear tomorrow

HSBC bank in Covent Garden, London
HSBC bank in Covent Garden, London

The last-standing sub-4pc fixed mortgage deal is to disappear from the market tomorrow as lenders respond to the likelihood that interest rates will reduce at a slower pace than previously thought.

HSBC has announced it is increasing the rates on several of its fixed mortgage products from Friday, after holding out while others pushed up their lending prices.

Currently the bank is offering a five-year fixed-rate of 3.99pc for those with a 40pc deposit or equity. However, it is pushing up rates on its two-, three- and five-year fixed deals across loan-to-value ratios, leaving deals at above 4pc.

David Hollingworth of broker L&C, said: “There has been a large amount of pricing activity with lenders shifting rates regularly to adjust to the fact that markets now anticipate the base rate may take longer to fall than had previously been hoped.


“This has forced fixed rates back up as funding costs have risen leading to HSBC being the last lender standing in the sub-4pc bracket. That may catch some borrowers by surprise when the rate story this year has generally been one of falling rates.”

NatWest will also raise rates on Friday, following Santander, Coventry Building Society and TSB which have increased prices on selected mortgage products in the past week.

Currently the five-year swap rate is at 3.98pc, leaving no margin for deals under 4pc, adds Nicholas Mendes from broker John Charcol.

Swap rates are the main pricing mechanism for fixed rate mortgages, and give an indication of where the market expects interest rates to be at a future point.

They have risen over the past few weeks as economists predict the Bank of England will wait longer than previously thought before reducing interest rates.

At its last decision the Monetary Policy Committee held the Bank rate at 5.25pc, and suggested inflation would tumble to 2pc in April before increasing again.

Economists have warned that pay is rising too fast for the Bank of England to cut interest rates after wages rose by 6.2pc in the year to December.


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Market indicators suggest the central bank will deliver three cuts towards the end of the year. The cuts, estimated at 0.25pc, will be followed by two or three further reductions in 2025, it is predicted.

Previously it was hoped rate cuts would start in the spring.

The news of further rate rises are a blow for homeowners coming to the end of their loan terms. There are around 1.5 million homeowners coming to the end of their fixed rates this year, according to the FCA, and will likely be forced on to costlier deals.

The average two-year fixed rate mortgage is now at 5.72pc, with the five-year average at 5.3pc, according to data firm Moneyfacts. Both have been steadily rising for the past few weeks.

However, even with the increases rates are down from the end of last year and a small increase shouldn’t put people off, adds Chris Sykes from Private Finance.