Virgin Money has announced an increase in its mortgage rates, taking a different approach from the trend observed last week when two prominent lenders introduced price reductions. The bank has raised rates on a selection of its two- and five-year fixed mortgage deals for house purchases by 0.20%. Additionally, it has made similar increases to certain remortgage offers, signalling a notable shift in its pricing strategy amidst changing market conditions.
These adjustments come in the wake of recent reductions by HSBC and First Direct, which had lowered their mortgage rates just last week. During this time, Moneyfacts reported a slight decline in average product rates in early 2025, offering a brief respite for borrowers. However, the latest move by Virgin Money indicates that the period of relief may be short-lived for those seeking new mortgage deals or considering remortgage options.
Virgin Money’s decision to raise rates is largely attributed to the rising swap rates, which lenders use to determine the pricing of their mortgage products. Swap rates, influenced by factors such as inflation, economic forecasts, and central bank policies, play a crucial role in shaping the mortgage landscape. As these rates continue to climb, lenders are left with little choice but to adjust their offerings to align with the cost of borrowing in the market.
The decision to increase rates is not entirely unexpected, given the current economic climate. Financial experts had anticipated that lenders might revise their rates upwards due to mounting pressures in the market. While some lenders had taken the opportunity to reduce rates in the short term, Virgin Money’s move reflects a broader reality of an uncertain and fluctuating mortgage market.
For borrowers, this development underscores the importance of staying vigilant and considering their options carefully. Those looking to secure a mortgage or remortgage may need to act swiftly to lock in favourable deals, as rate increases could become more common in the coming months.
Virgin Money’s rate hikes serve as a reminder of the complex dynamics at play in the housing market, where economic conditions, policy decisions, and lender strategies intersect to influence the financial choices available to homeowners and prospective buyers. As 2025 progresses, it remains to be seen whether other lenders will follow Virgin Money’s lead or whether further rate reductions might offer relief to borrowers.
Frances Haque, Chief Economist at Santander UK, has shed light on recent developments in the financial markets, highlighting a noticeable upward movement in swap rates. According to Haque, this trend is being driven by volatility in the bond market, which has been influenced by the uncertain economic outlook for 2025, both domestically and globally. This volatility has created a ripple effect, with lenders likely to adjust their pricing in response to the higher swap rates.
“In the short term, we’re already seeing lenders nudge up pricing to reflect the higher swaps,” Haque explained, suggesting that borrowers may encounter slight increases in mortgage rates as lenders respond to these economic shifts.
Despite the current adjustments, Haque remains optimistic about rate cuts later this year. She noted that the Bank of England is widely expected to lower the Base Rate during 2025. However, borrowers should temper their expectations, as significant price reductions may not materialise immediately following these anticipated cuts.
“Our own forecasts anticipate a further four reductions in the Base Rate throughout the year,” Haque shared. She projected that the Base Rate would conclude the year at approximately 3.75%, adding that it is likely to stabilise within the range of 3% to 4% for the foreseeable future.
Haque’s remarks provide valuable insight into the evolving mortgage landscape, where borrowers must navigate the interplay of market volatility, lender strategies, and central bank policies. For those considering new loans or remortgaging, staying informed about these trends will be crucial in securing favourable terms amidst the shifting financial environment.
The average two-year fixed residential mortgage rate has risen slightly, now standing at 5.49% as of Tuesday, 14 January 2025, according to Moneyfacts. This marks a modest increase from 5.48% the previous day. Similarly, the average rate for five-year fixed mortgages has edged up from 5.26% to 5.27%. These small shifts highlight the current volatility in the mortgage market.
Nicholas Mendes, mortgage technical manager at John Charcol, has commented on the likelihood of further price hikes from lenders. He observed that while many lenders have not yet made significant rate increases in response to recent changes in swap rates, the pressure to do so is growing. Mendes explained, “Swap rates, which heavily influence mortgage pricing, have been steadily increasing, narrowing the gap between them and the lower loan-to-value (LTV) best mortgage deals available.”
Mendes pointed out that if this trend in swap rates persists, it is inevitable that mortgage rates will rise further. He noted that lenders cannot continue to absorb the higher costs associated with increased swap rates indefinitely. “If swap rates continue to rise, it’s inevitable that mortgage rates will have to give at some point,” he said.
For borrowers, Mendes advises swift action in light of these developments. He recommends closely monitoring the market trends and securing a mortgage deal sooner rather than later. “For now, borrowers should look to act quickly and observe the trends,” he advised. He added that lenders are likely adopting a cautious, wait-and-see approach, potentially hoping that the recent upward movements in swap rates are only temporary.
These insights provide a clear reminder of the dynamic nature of the mortgage market and the factors influencing rate adjustments. Borrowers are encouraged to remain proactive and informed, ensuring they secure the best possible deals amidst the ongoing market fluctuations.