Nationwide, Virgin Money and NatWest are the latest lenders to increase mortgage rates in response to higher swap rates resulting from the Middle East conflict.
Nationwide increased selected fixed rates by as much as 0.25%, impacting first-time buyer, homemover, existing homemover, remortgage, switcher and additional borrowing products.
Virgin Money has also made increases of up to 0.25% across selected products, including purchase, remortgage and product transfer deals.
Both Nationwide and Virgin Money’s changes came into effect today.
NatWest’s mortgage rate changes will apply from 7 March, with increases of up to 0.16% to its purchase, remortgage, first-time buyer, shared equity, green and buy-to-let (BTL) pricing.
According to Moneyfacts, the two-year swap rate rose from 3.33% on 27 February to 3.65% this morning, and the five-year swap rate rose from 3.5% to 3.8%.
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This has impacted the pricing of mortgages available, as Moneyfacts’ data showed that the average two-year fixed rate residential mortgage has gone up from 4.32% to 4.82%, as of 4 March, while the five-year fix rose from 4.94% to 4.96%.
Lenders moving fast
Nick Mendes, mortgage technical manager at John Charcol, said: “HSBC, Virgin Money, Coventry Building Society and Nationwide have all issued repricing notices over the past 12-24 hours, and NatWest now joining that group shows how quickly lender pricing can respond when funding costs move.
“Mortgage rates had been gradually edging down as markets priced in the expectation of several Bank of England rate cuts later this year. However, the recent geopolitical uncertainty has quickly fed into financial markets, with swap rates moving earlier in the week as investors reassessed inflation risks and the likely path of Bank of England interest rates.”
Dampening hopes for a base rate cut
Mendes said markets were now pricing in just one base rate for this year at best, and the chance of this happening at the Bank of England’s next meeting this month was no longer certain, and “appears far less assured”.
Adam French, head of consumer finance at Moneyfacts, said the Bank of England was “likely to resist any temptation” to cut the base rate and instead hold steady until the effects on the economy become clearer.
“What is immediately obvious is the risk of adding fuel to what may prove to be a fresh inflationary spike far outweighs any benefit a rate cut could bring,” French said.
He added: “Lenders are already beginning to change plans and reprice products in response to the likelihood of rates remaining at their current level, or higher, for longer than had been expected.”
French said this would not be the news that prospective borrowers wanted to hear, but the long-term damage caused by inflation would be worse than a delayed rate cut.
He added: “Inflation compounds quietly but relentlessly. Something that cost £100 in 2020 will cost around £128 today, for example, steadily eroding living standards and household spending power.
“Recent years have taught us that when inflation runs ahead of interest rates for prolonged periods, households pay the price.
“That experience should make policymakers cautious. Base rate policy works best when it remains firmly focused on the objective of taming inflation. Holding steady until the outlook is clearer will help avoid repeating the mistakes that have left British households still absorbing the cost of higher prices.”
However, Michael Brown, research analyst at Pepperstone, said the markets could be overreacting.
Speaking on the latest episode of Knight Frank’s Housing Unpacked podcast, he said: “The two-year swap is at its highest level since November, and the five-year swap is the highest it has been since January.
“I think the market has lurched too far in one direction and will probably slowly but surely lurch back in the other.”