Top mortgage contracts were withdrawn despite falling inflation

Two major lenders have announced plans to increase their mortgage rates.

Barclays’ two-year mortgage deal of 3.87 per cent was increased to 4.07 per cent.

The deal covered existing residential property purchases for those who have 40 percent deposit or equity in their home. Meanwhile, their standard product has increased from 3.9 percent to 4.1 percent.

Halifax also confirmed it will increase its two- and five-year fixed refinancing rates by 0.11 per cent to 0.24 per cent.

The increases follow those from NatWest, Santander and TSB earlier in the week.

Currently only Santander and Nationwide offer two-year fixes below 4 percent.

This is despite a sharper-than-expected fall in inflation this week from 2.2 percent to 1.7 percent in the year to September.

Although mortgages are not directly affected by inflation, many products are affected by the Bank of England’s base rate, which influences inflation.

While interest rates are widely expected to fall from 5 percent to 4.75 percent at the next Monetary Policy Committee (MPC) meeting in November, mortgage rates have started to rise in recent weeks.

This is due to rising swap rates, which affect the prices that lenders can offer.

David Hollingworth, associate director at L&C Mortgages, said: “Market expectations for interest rates have set the stage for a further cut this year, but have been slightly less optimistic about whether interest rates will now fall as quickly as was forecast in the summer.”

“As a result, the recent cycle of cuts in fixed mortgage rates has stalled and in some cases even reversed as more lenders have increased rates.”

Nick Mendes of John Charcol Brokers added: “The recent price adjustments are a minor setback as they effectively bring interest rates back to where they were four to six weeks ago, rather than signaling drastic changes.”

“While the market reacted positively to the inflation data, it is unlikely that many lenders will cut their prices immediately. Most will likely wait for the upcoming budget announcement before making any further adjustments.”

Average mortgage rates for two- and five-year fixed contracts rose in early October for the first time in three months.

Now the average two-year contract is 5.41 percent, while the average five-year contract is 5.09 percent.

However, there is hope that mortgage rates will fall again later this year.

In the meantime, experts say that for homeowners whose mortgage contract is expiring, now may be the time to sign a new contract.

Chris Sykes, from broker Private Finance, said: “Anyone buying should reconsider their buying position and think about what their monthly repayments might look like.”

“If you are planning to refinance or switch products with an existing lender in the next six months, it could be beneficial to consider your options now and lock in a rate. Once you have accepted an offer on a property, it may also be advisable to lock in a price soon for greater certainty and the flexibility to make adjustments later if necessary.”