More mortgage costs rise with 'worse to come' as Bank of England base rate expected to reach 5.5% high next year
Mortgage products have been pulled from the market and the state is paying mini-budget era interest rates on its bonds as the market expects rates to go higher than previously thought.
Britain's largest building society has made some mortgages more expensive as the Bank of England's interest rate is now expected to rise higher than previously thought.
Nationwide has said interest rates on new fixed-rate mortgages will rise 0.45 percentage points. It follows moves by lenders such as Halifax, Santander and Atom Bank who also upped their rates by up to 0.2 percentage points this week.
There's worse to come, the group said, as other lenders may do the same.
"When lenders withdraw mortgage products it can be in reaction to interest rate volatility, or even down to demand," Moneyfacts spokesperson Rachel Springall said. "However, withdrawals may influence other lenders to follow suit and reconsider their own propositions."
The average two and five-year fixed-rate mortgages are now 5.35% and 5.02% respectively, according to Moneyfacts data.
Mortgage costs increased significantly following the market turmoil of the September mini-budget announced by former chancellor Kwasi Kwarteng.
Rates were thought to have peaked but the Bank of England's base rate is now expected by markets to reach 5.5% by November and remain elevated until February 2024.
Price rises did not slow as much as the Bank hoped and core inflation, which strips out volatile energy and food prices, is at a 30-year high.
That anticipated increase is being priced in by lenders when evaluating what rates to offer new customers.
It is also affecting the amount of interest the state pays to the investors who have bought its bonds - IOUs used by states to raise funds.
The interest rates on two-year UK government bonds - known as gilts - are up to 4.55% on bonds to be paid back in two years. It's the highest rate since the mini-budget.
The central bank has been consistently raising interest rates since December 2021 in an effort to bring down inflation to its 2% goal.
The policy is backed by Chancellor Jeremy Hunt, who exclusively told Sky News he is "comfortable with the Bank of England doing whatever it takes to bring down inflation, even if that potentially would precipitate a recession".
-sky news
