Lenders slam the door on mega-cheap mortgages amid fears of an imminent interest rate rise

  • Mortgage rates fell to record low this summer as providers fought for customers
  • But Bank of England governor cautioned last week that interest rates may rise 
  • Any interest rate increase will hit homeowners who have variable rate deals  

Ultra-cheap mortgage deals are fast disappearing amid fears of an imminent interest rate rise.

Nationwide and NatWest are among lenders to have pulled five-year fixed products priced below 1 per cent.

The number of loans in that bracket has dropped by almost a third in a fortnight. Mortgage rates fell to a record low this summer as banks and building societies fought to attract customers.

But analysts believe the price war may be over. Bank of England governor Andrew Bailey cautioned last weekend that interest rates may have to rise to curb soaring prices.

Nationwide and NatWest are among lenders to have pulled five-year fixed products priced below 1 per cent 

Yesterday the Bank’s chief economist, Huw Pill, said that with inflation likely to hit 5 per cent early next year, the decision on whether to hike rates in November was very much ‘live’.

The City is betting on a rise as early as next month. The Bank of England base rate was cut to an all-time low of 0.1 per cent at the start of the pandemic in March last year.

Any increase will hit homeowners with variable rate deals and already struggling with higher energy and food bills.

A rise of 0.5 percentage points would add around £50 a month to the cost of a £200,000, 25-year mortgage. A 1 per cent increase would add around £90.

‘It seems inevitable that lenders will start to increase fixed rates,’ said Andrew Montlake of mortgage broker Coreco.

Any increase will hit homeowners with variable rate deals and already struggling with higher energy and food bills

‘The question is whether the Bank of England holds its nerve or feels it has to act sooner rather than later.’

Many lenders are starting to increase fixed rates for new customers. David Hollingworth of broker L&C said: ‘Borrowers have enjoyed a period where it felt like rates would drop ever lower. That movement has now taken a rapid turn and we’re already seeing fixed rates rising. The market remains competitive but fixed rates will shift as market expectation of a rate rise grows.’

Nationwide hiked its rates for borrowers with a 40 per cent deposit on Wednesday.

A two-year remortgage rose from 0.89 per cent to 1.04 per cent. Those fixing for five years will pay 1.24 per cent, up from 0.99 per cent. NatWest’s five-year offer is 1.02 per cent, up from 0.97 per cent. Halifax and Santander are now the only lenders still offering five-year fixes below 1 per cent.

Rachel Springall of Moneyfacts said: ‘There is still a plentiful amount of competitively priced mortgage deals out there. Lenders still very much want new business at the moment.’

n THE bank of mum and dad will have supported nearly half of all first-time buyer purchases this year.

Parents are expected to contribute £9.8billion in gifts and loans – an average of just over £58,000 per purchase, according to property group Savills.

It said that over the past ten years, family members have helped nearly 1.4million first-time buyers.

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