Mortgage shock: Fixed rates soar as borrowers set to face new pain

Homeowners looking for a new mortgage deal are facing another setback as lenders have raised fixed rates once again, indicating that borrowing costs in the UK are unlikely to decrease anytime soon.

According to the financial website Moneyfacts, several lenders, including First Direct, Coventry, Yorkshire, Nottingham, and Cumberland Building Society, have adjusted their mortgage offerings. Some have even withdrawn certain products entirely, leaving borrowers with fewer affordable choices.

This trend follows recent rate changes by HSBC, NatWest, and Nationwide, highlighting a consistent upward pressure on mortgage costs. The average two-year fixed rate has now reached 4.87%, up from 4.84% in just a few days, while the five-year fixed rate has climbed to 4.98%.

Experts caution that these increases could significantly impact the housing market, putting pressure on household budgets and slowing home sales. With rising inflation, energy costs, and a weakening pound, prospective buyers and those looking to remortgage may face higher payments for an extended period.

This situation is also likely to increase scrutiny on the Bank of England, as analysts discuss whether additional rate hikes will be necessary to control inflation, even as signs of a slowing economy become evident.

For homeowners, the message is clear: the era of low borrowing costs has ended, and mortgage payments could rise sharply in the coming months.

Adam French, head of consumer finance at Moneyfacts, said: “Mortgage rates had looked poised to fall ahead of an expected March base rate cut, but the escalation of conflict in Iran has abruptly shifted the mood and revived inflation fears, particularly as disruption in energy markets feeds through to higher prices.

“This has prompted markets to look again at the likelihood of any near-term interest rate cuts from the Bank of England, with expectations of lower rates pushed further into the future.

“This change in sentiment has rapidly rippled through into the swap markets lenders use to fund fixed-rate mortgages.”

He said: “Because these swap rates underpin the cost of offering fixed deals, lenders often have little choice but to adjust pricing when funding costs move quickly, and it is now starting to show in mortgage costs.

“Many lenders have moved to increase rates as market conditions have deteriorated. HSBC, Nationwide Building Society, Virgin Money and Gen H have all introduced fixed-rate increases of up to 25 basis points, while several others have nudged selected deals higher.

“As a result, average mortgage pricing has risen, with the Moneyfacts average two-year fixed rate rising to 4.87% and the average five-year fix to 4.98% on Monday March 9.

“It’s unwelcome news for borrowers as it looks like we are entering a period of much more volatile mortgage pricing than had been expected just a few weeks ago and the new direction of travel will largely depend on what happens in global markets.

“If the conflict continues to fuel inflation concerns and keep swap rates elevated, upward pressure on mortgage rates may persist.”