Mortgage rates creep up despite Bank of England Inaction

Mortgage borrowers’ chances of securing an ultra cheap deal narrowed this week in spite of a decision by the Bank of England to hold interest rates at 0.1%, as banks and building societies raised interest rates across their fixed rate home loans. The central bank’s decision surprised financial markets, which had factored in a rise this month. Rates are nonetheless likely to rise to around 1% by the end of 2022, according to the Bank’s inflation report.

Lenders, which had already been raising interest rates on their home loans amid expectations the Bank would act, pressed ahead with further withdrawals of low rates. Rate rises on mortgages at HSBC, NatWest and Nationwide took effect on Thursday. Skipton Building Society said it would remove all of its three year fixed rates on Friday and Leeds Building Society announced a rise in rates on mortgages at loan to value ratios of 80 and 85%.

For a borrower paying an average standard variable rate on a £150,000 repayment mortgage over 20 years, a rise in rates to 1% would leave them paying an extra £71 a month. The number of sub 1% deals fell from 131 in the first week of October to 30 by Wednesday, according to Moneyfacts, the finance website. One lender to withdraw such a rate this week was HSBC, which raised the 0.99% interest rate on its two year fixed rate mortgage to 1.14%. Nationwide raised the five year rate on its 60% LTV deal from 1.24% to 1.34%. Rate rises are set to have less impact on mortgaged households than in the 1990s and 2000s because of long term growth in fixed rate mortgages, which protect borrowers from rate rises over the period of the agreed term. Over 90% of mortgages advanced over the past four years have been fixed rate loans. 

However, experts believe the impact of a rate rise to 1% in 2022 is unlikely to reverse the recent growth trend in the housing market. Repayments are currently equivalent to 39% of the median full time salary after tax, below the historical average of 43%. And a rise in interest rates to 1% would only take mortgage repayments up to the long run average.