UK homeowners face a fresh wave of mortgage rate increases in the coming days as turmoil in the bond market pushes up the cost of borrowing, brokers have warned.
Earlier this week, all of the major high street lenders announced rate rises, but brokers say the pain for borrowers is far from over. They warn that the best mortgage deals will start disappearing from best buy tables as lenders scramble to reprice.
Nicholas Mendes, of broker John Charcol, said price hikes were far from finished and that borrowers who need to remortgage should brace for fresh increases in the coming days.
Darryl Dhoffer, a broker known as The Mortgage Geezer, said: "Expect more hikes. Unless bond volatility cools immediately, the rest of the market has no choice but to follow suit."
Britain's largest lenders, including Nationwide and Halifax, raised rates by as much as 0.2 and 0.18 percentage points respectively earlier this week. Regional building societies, including Nottingham and Skipton, also increased their prices.
Tracey Dixon, of Pure Mortgage and Protection, said any remaining banks that have not yet moved will come under mounting pressure to raise their own borrowing costs.
Why bond market turmoil is driving up rates
The increases are being driven by so-called swap rates, which banks use to price their mortgage deals and which closely track gilt yields, the interest paid on UK government bonds. Gilt yields have been surging amid wider turmoil in the global bond market.
Five-year gilt yields rose to more than 4.9 per cent on September 9, according to the report. The average two-year fixed residential mortgage rate stood at 5.67 per cent that day, while five-year fixed deals averaged 5.71 per cent.
Craig Fish, of Lodestone Mortgage, said: "Lenders have every reason to price in caution now rather than wait and see."
He said smaller lenders would move "faster and further" in raising their rates, while larger players might be able to absorb some of the volatility for longer before repricing their own deals.
Inflation pressures add to the squeeze
The rise in mortgage rates has also been linked to inflation triggered by the conflict with Iran, which has reversed hopes that the Bank of England would cut interest rates. That leaves both those remortgaging and those buying a home facing higher costs.
Swap rates and gilt yields are watched closely because they set the wholesale cost at which banks borrow money before lending it on to homeowners. When those underlying rates rise sharply, lenders typically have little choice but to pass the higher cost on through their fixed-rate mortgage deals, or withdraw their cheapest offers altogether.
What borrowers can do
Brokers are urging anyone coming up to a remortgage, or planning to buy a home, to act quickly and seek advice given how fast the best deals are being withdrawn. With smaller lenders expected to move first and fastest, comparing rates across a wide range of providers, rather than relying on a single high street name, is likely to matter more than usual in the days ahead.
