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Major bank hikes mortgage rates amid market turmoil as brokers warn other lenders will follow
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A MAJOR bank has hiked rates on some of its mortgages amidst market turmoil as experts warn more lenders could follow.
Virgin Money has upped rates on a selection of fixed deals by up to 0.2 percentage points.
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It comes following major market turmoil, with the pound dropping to its lowest level since November 2023 on Monday after a government debt sell-off.
It has seen swap rates rise, which can affect how much lenders charge on their mortgages.
Virgin Money is the first bank to up its rates, with the lender increasing two and five-year fixed rates for customers with a loan-to-value mortgage of 65% or 75% by 0.2 percentage points.
Meanwhile, selected shared ownership fixed rate deals have increased by up to 0.2 percentage points.
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Product transfer five-year fixes for those with a 65% loan-to-value have been hiked by 0.1 percentage points.
The increase to the lender's mortgages come amidst market turmoil following record government borrowing.
Interest rates on government bonds soared to their highest level in 27 years last week, with investors concerned about the UK's economic growth prospects, partly due to inflation.
As bonds fall in price, the interest rates, or yields, on them rise meaning it's more expensive for the government to borrow money.
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This, in turn, can drive up swap rates, which are used by lenders to price fixed-rate mortgage deals.
Fears have already been raised around 700,000 mortgage holders coming off fixed deals this year could end up paying more for new deals than previously expected due to the higher swap rates.
What is the Bank of England base rate and how does it affect me?
But brokers are also warning fixed deals could be driven up in the more short to medium term.
David Hollingworth, associate director at L&C Mortgages, said: "There’s been a steady flow of lender price changes feeding through since last week and it’s highly likely that there will be more to come.
"Skipton BS, TSB and Leeds BS are all examples of those that made some selected increases last week.
"Virgin Money is one of the lenders continuing that trend into this week as lenders adjust their pricing to account for the slightly higher swap rates feeding into the market caused by the turmoil in the gilt market and pressure on government borrowing costs."
Meanwhile, Nick Mendes, from broker John Charcol, added that markets predicting inflation will stay higher for longer could lead to interest rates not falling as sharply as previously hoped.
At the start of the year, markets were predicting the base rate, used by the Bank of England (BoE) to control inflation, would be lowered to 4%, from 4.75% currently.
The bank's Monetary Policy Committee (MPC) next meets on February 6 to decide whether to raise, lower or keep the base rate the same.
It comes after the latest data from the ONS revealed the CPI measure of inflation in the 12 months to December measured 2.5%, down from 2.6% in November.
"Prices are still rising, and while the Bank of England might be thinking about cutting interest rates in the future to support the economy, it’s not guaranteed," Nick said.
"If that happens in February which hasn’t been priced in by markets, it would ease some of the pressure on mortgage rates, but it’s not something we can count on just yet."
Should I lock in a new mortgage deal yet?
With the risk of mortgage rates not coming down any time soon, it could be worth locking in a new deal as soon as possible.
You can get a new deal up to six months before your current deal is set to end.
Nick said: "For anyone nearing the end of a fixed-rate term or considering a new mortgage deal, it is vital to act quickly.
"Securing a fixed rate now, even if rates feel high compared to previous years, could offer valuable protection against potential further increases in the coming months.
"Acting decisively will provide peace of mind and stability in what remains a highly uncertain environment."
It's worth bearing in mind that mortgage rates might not increase over the coming months and these are just predictions.
However, it's still worth fixing now as you can always swap onto a better deal later if rates come down.
The worst thing you can do is let yourself roll onto your lenders' standard variable rate (SVR).
SVRs often have much higher interest rates than fixed deals.
A typical SVR currently has an interest rate of 7.81% compared to an average five-year fix at 5.25%, according to rate analyst MoneyfactsCompare.
On a £250,000 loan, a 7.81% interest rate would cost you £1,898 a month compared to £1,498 a month at 5.25%.
Gilt yields fell at their fastest pace in over a year today following the ONS publishing the CPI inflation for December data.
It is too early to say whether they will continue to fall though.
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In other news, Virgin Money has announced it will now include 15 different types of benefits income in its mortgage affordability assessments.
The change means that more people will be able to count their benefit income as part of their affordability when applying for a mortgage, potentially allowing them to borrow more.
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you're remortgaging and your loan-to-value ratio (LTV) has changed, you'll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home's value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you're nearing the end of a fixed deal soon it's worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal - but compare the costs first.
To find the best deal use a to see what's available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You'll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee - sometimes more than £1,000 - to the cost of the mortgage, but be aware that means you'll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you'll have to pass the lender's strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month's payslips, passports and bank statements.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected].
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