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Borrowers beware: UK’s biggest mortgage lender ups rates over inflation fears

Nick Cheek
Written By:
Nick Cheek

Nationwide has increased rates across select new business and existing borrower mortgages by as much as 0.4% following a spike in swap rates.

Nationwide, the UK’s largest mortgage lender, has increased rates across a series of mortgage products by up to 0.4 percentage points. And, others are likely to follow suit.
The Nationwide changes apply to its two, three, five and 10-year fixes between 60% and 95% loan to value (LTV) as well as its two-year tracker products with a £999 fee. 
For example, its two-year fixed 60% LTV deal with a £999 fee for new borrowers is now priced at 5.04% up from 4.64% while the corresponding product at 95% LTV is now 5.69%, up from 5.29%.   
For first-time buyers, the 95% LTV rate with a £999 fee is priced at 5.74%, previously 5.34%.This increase in rates comes as swap rates rose significantly overnight.

Why are rates going up?

According to Chatham Financial, who monitor swap rates, as of 4.45pm 25 May, the two-year swap rate stood at 5.039%, up from 4.696% on 23 May and 4.472% on 24 April. Swap rates are when two parties swap interest rate payments with one another. One party agrees to receive a fixed-rate payment, while the other receives a variable payment. They are one of the key factors which move mortgage rates.

Another key factor is the Bank of England base rate. And there is speculation the BoE will have to raise interest rates, currently standing at 4.5%, once again.

This is despite the inflation rate falling back from 10.1% in the 12 months to March, to 8.7% in April – the first time in eight months it has recorded single digits.

Gary Smith, partner in financial planning at wealth manager Evelyn Partners, said: “Our investment strategy team noted that market peak rate expectations surged after the inflation reading, with traders now expecting the Bank of England to nudge rates up to 5.5% rather than the previous forecast of 5.0%. That surely scotches any idea that we might be seeing peak mortgage rates now or that they might come down in the near future.

Danni Hewson, head of financial analysis at AJ Bell, agreed with that assessment, saying: “Looking at market expectation this morning it seems there’s speculation the Bank of England might go as high as a 5.5% base rate in order to complete its task.

“Wages have risen, even if most people haven’t felt the benefit because of those price hikes, and businesses will have to find a way to recoup those increases if they haven’t already passed the costs onto their customers.”

And Susannah Streeter, head of money and markets, Hargreaves Lansdown was more colourful in her language but no less gloomy in her outlook for base rates.

She said: “Another rate rise may have the effect of a herd of rhinos trampling over an economy, which is only just seeing some green shoots appearing as the forecast recession recedes. But policymakers don’t have many other strategies to deploy right now to herd inflation in the right direction.”