Mortgages under 4% have all but disappeared after most major lenders raised borrowing costs as the property market braces for a year of rising interest rates and inflation.
The average rate for a two-year fixed mortgage came in at 4.99% this week, higher than last week’s 4.79%, according to data from Uswitch.
The average five-year fixed deal came in at 5.05%, up from 4.94% previously. These are the average rates across all lenders for a 75% loan-to-value (LTV) mortgage, meaning buyers need a down payment of at least 25% of the purchase price.
The Bank of England (BoE) voted unanimously to keep interest rates on hold in the face of the Iran war this Thursday.
Before the outbreak of war in the Middle East, expectations had been that the rate would be cut to 3.5% but the conflict has triggered a global economic fallout, ending hopes of falling interest rates this year.
Matt Smith, mortgage expert at Rightmove, said: “Today’s decision to hold the Bank Rate was widely expected, and for most homeowners and homebuyers, there’s no immediate change to worry about. For those looking to secure a new mortgage rate or coming up to remortgage, even small rises in rates can have a real impact on monthly budgets, and lenders are very aware of that.
“Recent geopolitical uncertainty has made financial markets more volatile. That volatility feeds into swap rates, which are the underlying costs lenders use to price fixed‑rate mortgages. As a result, some mortgage rates have nudged up slightly this week, even though the Bank Rate itself hasn’t changed.
He added: “Lenders are being understandably cautious in this environment. Some are quicker than others to adjust rates, which can lead to uneven changes across the market.”
Read more: Bank of England holds interest rates at 3.75% amid Iran conflict
Alice Haine, personal finance expert at Bestinvest, said: “For homeowners, the resurgence of sharply rising mortgage rates will be deeply worrying. Average fixed mortgage rates have jumped back above 5% since the conflict began as expectations for the future path or interest rates deteriorate.
First-time buyers and those refinancing now face higher borrowing costs and fewer options as sub-4% deals available only a few weeks ago disappear from the market.”
Haine said that the urgency had returned as borrowers scrambled to secure the most competitive deal available while they can. “Perhaps the most disappointed group will be homeowners with large mortgages coming off ultra-low fixed rates secured before the central bank began tightening in December 2021,” she said. “Many five-year deals struck in 2021 – when rates were at record lows – are now expiring, so household budgets must now adjust to accommodate significantly higher repayments.”
She suggested that anyone looking to buy now or remortgage in the next six months would be wise to secure the best deal they could find. “If the situation de-escalates and better rates emerge, borrowers typically have the option to switch to a cheaper product up until two weeks before their new mortgage term starts,” she said.
Financial information website Moneyfacts said major lenders no longer offer sub-4% fixed-rate deals, which were available to borrowers only last week. Across the mortgage market, there were 689 fewer products on Tuesday than on 9 March.
This week, NatWest (NWG.L), Barclays (BARC.L), Nationwide and Halifax all increased mortgage costs. HSBC (HSBA.L) was the only major lender to keep its rates unchanged.
Lenders have been raising rates over the past fortnight amid fears that disruption to oil (BZ=F, CL=F) and gas (NG=F) supply through the Strait of Hormuz could drive higher inflation and force the Bank of England to keep the base rate at 3.75% or even raise it.
Sam Kirtikar, chief executive of The Mortgage Broker Group, said: “In the run-up to today’s Bank of England decision, we have seen a clear rise in clients wanting to review their options early and lock in a rate rather than wait and hope.”
“The mortgage rate volatility represents the volatility that everyone felt around the world, with there suddenly being a lot of uncertainty in the mortgage market, and that has absolutely made our clients much more cautious about leaving things too late and waiting.”
“We have seen plenty of rate switches in recent weeks, with many borrowers keen to secure something now in case lenders reprice again or withdraw deals at short notice. Even if the BoE holds, that does not automatically mean mortgage pricing will suddenly drop again as lenders are still responding to wider market conditions and funding costs.”
Here is more detail on major lenders’ mortgage rates this week:
HSBC (HSBA.L) has a 4.09% rate on a two-year deal, with a £999 booking fee, unchanged from last week. For those with a premier standard account with the lender, this rate is 4.06%.
Looking at the five-year options, the fixed standard rate is 4.28% with a £999 fee, which is also unchanged.
Both cases assume a 60% LTV mortgage, meaning buyers need a deposit of at least 40%.
HSBC (HSBA.L) offers 95% LTV deals, so you only need to save for a 5% deposit. However, the rates are much higher, with a two-year fix at 4.19% or a five-year fix at 5.22%.
This is because someone’s financial situation and deposit size determine the rate. The larger the deposit, the lower the LTV, allowing buyers to access better deals because lenders consider them less risky.
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The lender has recently unveiled a cashback offer of up to £2,000 to ease the upfront costs of entering the housing market.
The bank’s enhanced incentive package, which brokers say could ignite a fresh round of competitive pricing among high-street lenders, marks one of the most generous cashback schemes currently available. The measure is aimed at supporting borrowers struggling with deposit and moving costs at a time when affordability pressures remain high despite a recent easing in mortgage rates.
NatWest’s (NWG.L) two-year deal comes in at 4.04%, with a £1,495 product fee, higher than the previous 3.72%.
The cheapest five-year fixed deal is 4.49%, which also more than last week’s 3.89%. In both cases, you’ll need a deposit of at least 40% to qualify for the rates.
Barclays (BARC.L) has a two-year fix available at 4.25% with a £899 product fee, higher than last week’s 3.80%. Its five-year deal also increased from 4.10% to 4.55%.
Barclays (BARC.L) launched 95% loan-to-value (LTV) mortgages for purchasers of new-build houses, in a move aimed at easing the path to home ownership, especially for first-time buyers.
The offer applies to new-build houses with a maximum purchase price of £600,000. Previously, buyers were required to pay a 10% deposit, meaning a £60,000 deposit on a £600,000 property. Under the new criteria, that requirement could be halved to £30,000.
Earlier in the year, Barclays (BARC.L) launched a mortgage proposition to help new and existing customers access larger loans when purchasing a home.
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The initiative, known as Mortgage Boost, enables family members or friends to effectively “boost” the amount that can be borrowed toward a property without needing to lend or gift money directly or provide a larger deposit.
Under the scheme, a borrower’s eligibility for a mortgage can increase significantly by including a family member or friend on the application. For example, Barclays (BARC.L) stated that an individual with a £37,500 annual income and a £30,000 deposit could borrow up to £168,375, meaning the most they could afford would be a home worth £207,375.
However, with Mortgage Boost, the total borrowing potential can increase if a second person, such as a parent, is added to the application. In this case, if the second applicant also earns £37,500 a year, the combined income could push the borrowing limit to £270,000, enabling the buyer to afford a home worth up to £300,000.
Nationwide (NBS.L) has increased its two-year deal for first-time buyers from 3.92% to 4.45% this week. For a five-year deal, the rate rose from 4.31% to 4.70%. Both deals require a 40% deposit and come with a £999 upfront fee.
First-time buyers also receive £500 cashback when they complete their mortgage with Nationwide (NBS.L).
The lender this week announced an expansion of its high loan-to-income (LTI) lending, a change that could see some borrowers access tens of thousands of pounds more than previously available.
Under the new terms, home movers and customers remortgaging will now be able to borrow up to six times their annual income. This enhanced offering extends to both new and existing customers moving home or remortgaging, and applies to loans with a loan-to-value (LTV) up to 95%.
To qualify for this increased borrowing, sole applicants must demonstrate a minimum annual income of £75,000, while joint applicants must demonstrate a minimum yearly income of £100,000. These income thresholds remain consistent with previous requirements, which allowed eligible groups to borrow up to 5.5 times their income.
The changes mean that, for example, a sole applicant who was a new customer moving home or remortgaging, with an income of £75,000, may previously have been able to borrow up to £412,500 from Nationwide (NBS.L). But now they could potentially borrow up to £450,000 – an increase of £37,500.
Nationwide (NBS.L) has also become the first lender to allow a mortgage deed to be signed electronically and without the need for a witness in a “significant step” for the market.
Anyone purchasing a property or looking to remortgage with Nationwide (NBS.L) will be able to sign their mortgage deed electronically if their solicitor is set up to use a Qualified Electronic Signature.
Halifax, the UK’s largest mortgage lender, offers a two-year fix at 4.31% (also 60% LTV), which is higher than the previous 4.16%.
The lender, owned by Lloyds (LLOY.L), also offers a five-year rate of 4.30%, a jump from last week’s 4.15%. This makes Halifax the only lender on our list offering a cheaper 5-year fix than a 2-year deal.
It has a 10-year deal with a mortgage rate of 4.93%.
Santander (BNC.L) withdrew its 60% LTV mortgage products for first-time buyers on borrowing of less than £250,000 on two- and five-year terms last September.
A spokesperson for the bank said that the “change was part of a reprice following the changes to swaps after the Bank of England held interest rates”.
Santander (BNC.L) continues to offer products with LTVs of 85% or above for first-time buyers, with the cheapest two-year fix at 4.38% and the cheapest five-year fix at 4.46%.
For home movers with a 40% deposit, Santander (BNC.L) is offering a two-year fixed rate of 4.13%, higher than the previous 3.51% and a five-year deal of 4.21%, a hike from the previous 3.80% deal.
The lender has launched a mortgage that lets first-time buyers borrow up to 98% of the property’s value.
The deal does require a minimum £10,000 deposit, though, so borrowers would need to be purchasing a home for £500,000 to have put down a deposit as low as 2%.
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Santander UK (BNC.L) said its “my first mortgage” deal has a fixed rate of 5.19% over five years and has no product fee.
The product, with up to 98% loan-to-value (LTV), is available for maximum lending of up to £500,000, repayable over a term of 5-40 years.
The deal is not available to self-employed applicants and covers only applicants living in Britain, with Northern Ireland excluded, Santander (BNC.L) said.
It is available for a minimum of £190,001 being borrowed, and £250 cashback is payable on completion.
Lending above 95% and up to 98% is available on existing houses only, Santander (BNC.L) said.
All lending also remains subject to Santander’s (BNC.L) broader affordability checks, including a maximum loan-to-income multiple of 4.45 times salary.
NatWest (NWG.L) offers the most competitive two-year deal on the market for first-time buyers, with a fixed rate of 4.04%. When it comes to a five-year fixed deal, HSBC (HSBA.L) takes the crown, with its 4.28% offer. However, any of these deals require a hefty 40% deposit.
With the average UK house price at £273,176 in February, prospective homebuyers would need a deposit of around £109,000 to secure the cheapest rates.
A growing number of homeowners in the UK are opting for mortgage terms of 35 years or longer, with a significant rise in older borrowers stretching their repayment periods well into their 70s.
Skipton Building Society is allowing first-time buyers to borrow up to 5.5 times their income, helping more borrowers get on the housing ladder.
Leeds Building Society reduced the minimum household income requirement on its first-time-buyer mortgage range. This means single or joint first-time buyer applicants with a household income of £30,000 may now be able to borrow up to 5.5 times their earnings.
Another lender has launched a 0% deposit mortgage aimed at renters as competition in the niche gathers pace. Melton Building Society is the latest provider to introduce such a product. The mutual is offering a five-year fixed rate mortgage at 5.99%, with a £199 application fee and £199 cashback on completion.
Under a no-deposit arrangement, also known as a 100% loan-to-value mortgage, the lender finances the entire purchase price of the home.
The deal is initially available to borrowers living in the East Midlands, with a broader rollout planned later this year.
Meanwhile, Newcastle Building Society offers a First Step mortgage deal, where buyers only need to put down 2% of the house price.
Mortgage holders and borrowers have faced higher repayments in recent years, as the BoE’s higher base rate has been passed on by banks and building societies.
Many homeowners will hope the BoE continues to cut interest rates. At the same time, savers will likely root for rates to remain at or near their current levels.
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