Five of Britain’s largest mortgage lenders have raised their rates, even though the Bank of England lowered interest rates last week. Santander, TSB, HSBC, Virgin Money, and Nationwide Building Society have all confirmed that they will be increasing the rates on their fixed-rate mortgage products this week.`x

This follows a previous announcement last week where Nationwide, TSB, and Santander, along with other lenders, revealed they were reducing rates on tracker and variable-rate deals. These cuts came in response to the Bank of England’s decision to lower its base rate from 5 per cent to 4.75 per cent on Thursday.

However, this week, these same lenders are going in the opposite direction, raising rates specifically on their fixed-rate mortgage offers. This shift has raised questions about the factors influencing these rate changes despite the recent base rate reduction.

This development will be a concern for many mortgage borrowers, especially as the majority of households in the UK are currently on fixed-rate deals. According to UK Finance, around 82 per cent of mortgaged households, which equates to nearly 7 million homes, are on fixed-rate mortgages.

While most households are shielded from any immediate rate changes until their current deal ends, the Bank of England’s November Monetary Policy Report highlighted a significant issue. It forecasts that around 800,000 fixed-rate mortgages, which are currently on rates of 3 per cent or less, will come up for renewal each year until the end of 2027. This will expose a large number of homeowners to potential rate increases.

In response to the changing market, Santander has announced increases of up to 0.29 per cent across its residential fixed-rate mortgages for both purchases and remortgages. This marks a further shift in the mortgage landscape, as rates rise despite the Bank of England’s recent rate cut.

Alongside Santander, other major banks are also raising their fixed mortgage rates. HSBC, for instance, has not disclosed the changes yet but will do so tomorrow. TSB, on the other hand, has already raised its fixed rates by up to 0.3 per cent as of yesterday.

Nationwide, the UK’s largest building society, also revealed plans to increase some of its fixed rates starting tomorrow. The building society is raising rates on its two, three, and five-year fixed-rate products by up to 0.2 per cent. Nationwide explained that these increases reflect the current swap rate environment and the general rise in mortgage rates seen across the market in recent weeks.

Virgin Money also announced a hike in fixed rates this afternoon. The changes, which affect home buyers, remortgages, and buy-to-let borrowers, will see rates rise by up to 0.25 per cent. These adjustments are set to take effect from 8pm tonight.

Why are banks increasing fixed rate mortgages? 

The recent hikes in mortgage rates may appear counterintuitive, especially after the Bank of England’s decision to lower the base rate to 4.75 percent—marking the second reduction this year. 

However, mortgage brokers suggest that the rising rates are likely a result of increasing funding costs, driven by heightened inflation expectations following the Labour Budget and the possibility of a Trump re-election. 

Rohit Kohli, director at The Mortgage Stop, expressed his concerns to news agency Newspage: “Many borrowers will be left scratching their heads as to why, less than a week after the Bank of England cut the base rate by 0.25 per cent, lenders like TSB are increasing fixed rates.”

He went on to explain that the markets are still feeling the aftershocks of the Labour Budget. While not as disastrous as the mini-Budget, the longer-term cost of borrowing continues to rise. 

Kohli added that gilt yields and swap rates are reacting not only to the effects of budgetary policy but also to geopolitical uncertainties, including Donald Trump’s potential re-election. He warned that anyone hoping for significant interest rate cuts in the near future is likely taking a gamble.

John Fraser-Tucker, head of mortgages at broker Mojo Mortgages, explained that while the Bank of England’s recent decision to lower the Bank Rate might lead some to expect a broad reduction in mortgage rates, the mortgage market does not always respond in perfect alignment with changes to the Bank Rate.

He emphasised that fixed-rate mortgages, in particular, are influenced by a range of factors beyond just the Bank Rate. These can include the lender’s own funding costs, their outlook on future economic conditions, their competitive positioning in the market, and even their internal business goals.

Fraser-Tucker also highlighted that fixed-rate mortgage pricing is largely influenced by Sonia swap rates, which are the inter-bank lending rates based on future interest rate expectations. When Sonia swap rates rise, it typically leads to higher fixed-rate mortgages, while falling swap rates generally result in lower mortgage rates.

As of 8 November, five-year swaps stood at 3.97 per cent, while two-year swaps were at 4.19 per cent. These swap rates have risen from 3.87 per cent on 29 October, the day before the Budget, and from 3.7 per cent on 24 October.

Nicholas Mendes, mortgage technical manager at John Charcol, added that swap rates, which are crucial in determining fixed-rate mortgage pricing, have increased, placing further pressure on the market. He explained that the combination of rising swap rates and challenging market conditions is making it a difficult environment for borrowers to navigate.

What should mortgage borrowers do? 

The advice for borrowers is clear: lock in a new fixed-rate deal as soon as possible to avoid further increases in mortgage rates. 

A new mortgage offer typically lasts for up to six months, meaning homeowners can secure a new rate well in advance of their current fixed-rate deal ending. 

Nicholas Mendes, mortgage technical manager at John Charcol, emphasised the importance of acting swiftly. “For clients nearing the end of their fixed-rate terms, it’s essential not to delay in the hope that rates will revert to levels seen weeks ago,” he said.

“Securing a deal now provides certainty in an uncertain market. There is always the option to review and adjust if circumstances change, but acting promptly minimises exposure to further rate increases.”

This development highlights the importance of staying informed and proactive when managing mortgage commitments in today’s rapidly shifting financial environment.

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