New wave of mortgage rate rises as five high street banks make chunky home loan hikes on the same day

Britain’s biggest banks announced a wave of mortgage rate hikes today ahead of the Bank of England’s next interest rate decision on Thursday. 

Major lenders including NatWest, Santander, HSBC, Lloyds Bank and TSB all announced increases within hours of each other in a blow for homeowners, as concern grows over the future direction of inflation and interest rates. 

Experts now think there could be five rises in the base rate between now and the end of next year.

Santander, in particular, has announced chunky rises. From tomorrow it will be increasing two-year fixes by up to 0.45 percentage points and raising five-year fixes by up to 0.4 percentage points.

Aaron Strutt, of mortgage broker Trinity Financial, said: ‘I can’t remember the last time five of the big six lenders hiked their rates on the same day.

‘These Santander rates are going to come as a bit of a shock to customers who check today and again on Wednesday. 

‘It looks like this Santander rate change means the bank is pulling the last of its sub-5 per cent rates. Santander had a 4.52 per cent two-year fix a few days ago.’

Major banks, including NatWest, Santander, HSBC, Lloyds Bank and TSB, all increased mortgage rates this week for the second time since the start of September

Elsewhere, Barclays’ market-leading 4.55 per cent two-year fix with an £899 product fee will rise to 4.75 per cent. 

The bank only increased its fixed rates a few days ago.

HSBC’s lowest two-year fix is now 4.79 per cent and its cheapest five-year fix is 4.75 per cent.

Strutt added: ‘It looks like Barclays has raised lots of its deals to over 5 per cent, which is something we were hoping would not happen despite all the economic tensions.

‘HSBC’s changes seem pretty reasonable compared to some of the other lenders. Its Premier customer rates are marginally cheaper.’

Alongside the five high street banks, several building societies have also started to reprice for the second time this week, including Nationwide, which increased selected fixed rates by as much as 0.3 percentage points this week.

Since the beginning of March, the average two-year fixed mortgage rate has risen by 0.89 percentage points, according to money comparison website Moneyfacts.

On a £250,000 mortgage being repaid over 25 years, Moneyfacts says this will have typically added £131 to monthly repayments, or £1,572 per year. 

The Bank of England has estimated there are 750,000 households with a fixed rate of below 3 per cent that are set to expire in 2026. 

Many of these households will be on rates between 1 and 2 per cent and could be facing the prospect of fixing at around 5 per cent now.

A homeowner with a £250,000 mortgage on a 25-year repayment term locking in at 5 per cent could expect to pay £1,462 a month. 

That’s £462 more a month than they would be paying if their rate was 1.5 per cent.

Worryingly, the situation for households could get worse before it gets better, due to a recent spike in Sonia swap rates.

Market interest rate expectations are reflected in swap rates. 

These swap rates are influenced by long-term market projections for the Bank of England base rate, as well as the wider economy, internal bank targets and competitor pricing.

In aggregate, swap rates create a benchmark of where the market thinks interest rates will go – though they can shift quickly in light of economic changes. 

Today, five-year swaps hit 4.78 per cent, up from 4.28 per cent a month ago. Meanwhile two-year swaps were at 4.7 per cent, up from 4.17 per cent.

Sonia swaps are rising because the markets fear the impact of rising oil prices on future inflation and interest rates.

Due to this spike in Sonia swaps, it is ‘highly likely’ other lenders will follow suit and adjust their rates, according to Rachel Springall, finance expert at Moneyfacts.

‘The mortgage pain shows no sign of easing for those borrowers who cannot yet lock into a new deal, particularly those with a five-year fixed who are not due to refinance until 2027. 

‘Back in February 2022, there were sub-2 per cent fixed mortgages available, so moving off this rate will be a huge shock for borrowers.’

Re-pricing: Santander has announced that from tomorrow it will be increasing two-year fixes by 0.45 percentage points and a 0.4 percentage point hike on five-year fixes

Will the Bank of England increase interest rates?

The Bank of England has refrained from any rate hikes since December last year, holding base rate at 3.75 per cent for five consecutive meetings.

At its last vote on July 30, seven members of the Bank’s Monetary Policy Committee voted for a hold, while two voted to increase the base rate by 0.25 percentage points to 4 per cent. 

At present, most economists expect another hold this week, and a rise of 0.25 per cent in November. 

There is also speculation that four out of the five policy decisions between February and July 2027 will see base rate hikes. 

The total cumulative increase of five rises would add 1.25 per cent to base rate. 

Rachel Springall thinks there is every chance of a surprise interest rate hike this week.

‘This will be hugely disappointing news for borrowers. It demonstrates how fixed mortgage rates are not intrinsically linked to adjustments to the Bank of England base rate, yet mortgage rates could climb even higher if the MPC decide to increase the base rate. 

‘If there is a spread vote between the doves and hawks, the Bank of England Governor, Andrew Bailey, will cast the deciding vote.’