Best UK MMortgage costs have largely remained unchanged this week, but UK homeowners are facing growing concerns over the potential for higher mortgage rates following a recent surge in borrowing costs. This development is raising anxiety among those looking to secure new deals or refinance their existing mortgages.
As of now, the average rate for a two-year fixed mortgage stands at 5.06%, showing a modest decrease from the previous rate of 5.19%. On the other hand, the average rate for a five-year fixed mortgage has increased to 5.09%, compared to 4.98% last week. This shift in rates highlights a growing trend, where the gap between two- and five-year mortgage rates is now the smallest it has been since January 2023, according to data from Uswitch.
This narrowing of the rate gap between short-term and long-term mortgages could signal significant changes in the broader housing market. With uncertainty surrounding future borrowing costs, homeowners are advised to keep a close eye on the market and consider locking in rates sooner rather than later to protect themselves from potential future hikes.
On Monday, Virgin Money implemented a 0.2% increase across its new two- and five-year fixed-rate mortgages, reflecting broader market shifts driven by a recent government bond sell-off. This bond market turbulence has intensified concerns that interest rates may remain high for a longer period than initially anticipated. As a result, the bank’s customers are now facing higher rates, which also affected several of its remortgage deals.
The adjustments were particularly noticeable in Virgin Money’s loan-to-value (LTV) purchase rates. Specifically, the 65% and 75% LTV purchase rates both rose by 0.2%, while its five-year fixed-rate deals for borrowers with an 85% LTV saw a more modest increase of 0.1%. This shift in pricing indicates the bank’s response to a rapidly changing financial landscape, where rising bond yields and expectations of a tight monetary policy are forcing mortgage lenders to reconsider their offerings.
As the financial markets continue to adjust, many mortgage holders and prospective buyers are left to navigate the complexities of higher borrowing costs, with mortgage rates climbing in response to the growing pressure on central banks and global markets. For those looking to secure deals in this environment, it is becoming increasingly essential to stay informed about the fluctuations in the mortgage market and to consider the potential long-term implications of higher rates.
Nick Mendes, a senior figure at mortgage brokers John Charcol, has shared his outlook on the current mortgage market, particularly in relation to lower loan-to-value (LTV) products. He explained that recent shifts in swap rates, a key factor in determining the cost of fixed-rate mortgages, are starting to make an impact on the rates offered by lenders. While lenders have so far been cautious, Mendes anticipates a gradual but inevitable increase in rates across the board.
Mendes pointed out that many lenders have been hesitant to make immediate, drastic changes to their rates, instead opting to take a more measured approach. However, as swap rates continue to rise, it’s likely that more lenders will feel compelled to raise their rates on new and existing products. This could especially affect lower LTV products, which are often seen as less risky for lenders and typically offer lower rates.
He further warned that borrowers seeking deals with rates under 4% may struggle to find such offers in the near future. Mendes noted that this trend of rising rates is likely to persist into the first half of the year, making sub-4% deals an increasingly rare find. With this in mind, he encouraged prospective borrowers to be mindful of the shifting market conditions and to prepare for higher rates as they consider their mortgage options. This development highlights the ongoing challenges homeowners and prospective buyers may face as they navigate a more expensive mortgage landscape.
HSBC mortgage rates
HSBC has maintained its position in the mortgage market with a competitive offering for both two- and five-year fixed-rate mortgages. For those opting for a five-year fixed-rate mortgage, HSBC is currently offering a rate of 4.09%, which has remained unchanged from the previous week. This rate applies to customers who meet the standard requirements for a 60% loan-to-value (LTV) mortgage. However, those with a Premier Standard account with HSBC can benefit from an even more attractive rate of 4.06%, a slight improvement that could appeal to long-term borrowers looking for stability over the next five years.
Looking at the two-year fixed-rate mortgage options, HSBC’s lowest rate stands at 4.20%, which is also unchanged from the week before. It is important to note that this rate comes with a £999 fee, which is a typical arrangement in the current market for those seeking lower initial rates. Both the two- and five-year deals mentioned are based on the assumption that the borrower has a 60% LTV, meaning they must have at least a 40% deposit saved up to secure these deals.
The LTV ratio is a key factor in determining the interest rate a borrower will receive. With a lower LTV, borrowers are considered less risky by lenders, making them eligible for more competitive rates. This is because a higher deposit reduces the lender’s exposure to risk, particularly if property prices fluctuate. As such, a 60% LTV ratio, requiring a 40% deposit, provides a strong position for prospective buyers looking to secure a more affordable mortgage deal over both the short and long term.
For buyers with smaller deposits, HSBC does offer a 95% LTV mortgage option, meaning you would only need to save a 5% deposit to access this deal. However, the rates for these higher LTV mortgages are significantly higher, with the two-year fixed-rate deal at 5.54%, and the five-year option coming in at 5.14%. These higher rates reflect the greater risk to lenders when they offer mortgages with a lower deposit. Borrowers in this position will generally face higher monthly repayments, but the option allows those who may not have a large deposit to still enter the property market.
The rate a borrower is offered will depend on a variety of factors, including the size of their deposit and their overall financial situation. Typically, those who can afford to save for a larger deposit can access lower rates because they present less risk to the lender. Conversely, borrowers who require a larger loan relative to the value of the property they are purchasing are generally charged higher interest rates, as lenders factor in the increased risk. Therefore, it’s crucial for prospective buyers to consider their financial position and how much deposit they can save when shopping for a mortgage.
NatWest Mortgage Rates
NatWest (NWG.L) is currently offering a five-year fixed-rate mortgage at 4.07%, with a £1,495 fee, which remains unchanged from the previous week. This rate is available for those who can provide a deposit of at least 40%, ensuring the borrower is financially stable and able to commit to a long-term deal.
For those looking at two-year fixed-rate mortgages, NatWest’s cheapest deal stands at 4.27%, again unchanged from last week. As with the five-year deal, a minimum of 40% deposit is required, providing buyers with flexibility in how long they want to lock in their mortgage rate.
Santander Mortgage Rates
At Santander (BNC.L), the five-year fixed-rate mortgage deal comes in at 4.14%, which remains unchanged from the previous week, and is available with a £999 fee. This rate also requires a 40% deposit, making it a relatively accessible option for borrowers who have saved a substantial deposit.
Santander’s two-year fixed-rate mortgage is priced at 4.21%, with the same £999 fee, which again is unchanged from the prior week. As with their five-year deals, customers are required to have a minimum 40% deposit to qualify for this rate.
Barclays Mortgage Rates
Barclays (BARC.L) continues to offer its five-year fixed-rate mortgage at 4.11%, which has not changed since the previous week. For borrowers looking for a shorter commitment, the two-year fixed-rate mortgage at Barclays is available at a rate of 4.23%, which is also unchanged.
Nationwide Mortgage Rates
Nationwide (NBS.L) is currently offering a five-year fixed-rate mortgage at 4.19%, which comes with a £999 fee and a minimum deposit of 40%. This deal has remained the same as the previous week, making it a consistent option for those looking for stability in their long-term mortgage.
For those considering a two-year fixed-rate deal, Nationwide offers a rate of 4.34%, also requiring a £999 fee and a 40% deposit. Like their five-year option, this deal remains unchanged from last week.
Halifax Mortgage Rates
Halifax, the UK’s largest mortgage lender, offers a five-year fixed-rate deal at 4.12%, unchanged from the previous week, with a 60% LTV requirement. For those looking for a two-year fixed-rate mortgage, the rate is 4.23%, with a £999 fee, which remains the same as before.
Additionally, Halifax has introduced a 10-year mortgage deal with a rate of 4.58%, providing an option for those who want long-term certainty. In response to growing demand, the lender has also launched a new 1.5-year fixed-rate remortgage product. Short-term fixes are becoming increasingly popular among borrowers, as they offer certainty over monthly payments while allowing households to take advantage of potentially lower rates in the near future.
Cheapest Mortgage Deal on the Market
As the market sees the disappearance of mortgages with rates below 4%, prospective homeowners are left with fewer options for securing a good deal. NatWest currently offers the cheapest deal, with a 4.07% rate for a five-year fix, but it comes with a hefty requirement of a 40% deposit. This means borrowers will need to save a substantial sum upfront to access this rate.
HSBC follows closely behind with a 4.09% deal for a five-year fix. Given the average UK house price of £292,505, a 40% deposit would equate to approximately £117,000. This highlights the increasing challenges for first-time buyers, who may now find themselves needing to spread their home loans over much longer periods than they would have just two years ago.