The end of record low mortgage rates in the UK is in prospect as HSBC withdrew its cheapest deal and brokers warned that other high-street banks would follow suit.
Bank funding costs have risen following Donald Trump’s US election victory as markets anticipate economic policies that push up growth and inflation, in turn forcing up interest rates.
This week HSBC brought an end to its 0.99 per cent two-year fixed rate mortgage, a deal that has dominated the “best buy” mortgage rankings since its launch in June.
Lenders have been jostling for business since the Bank of England took interest rates to historic lows after the financial crisis. But swap rates, which lenders use to guide the pricing of their fixed rate mortgages, have been creeping up in recent weeks, increasing costs for banks and putting pressure on them to raise their rates. Tracie Pearce, head of mortgages at HSBC, said: “Over the past four weeks we have seen the cost of funding increase, especially for two and five-year mortgages.”
David Hollingworth, director at broker London & Country Mortgages, said it was “a moment” for borrowers after rates had fallen “almost inexorably” in recent years. “It clearly indicates rates have hit bottom,” he said.
There have been conflicting signals from the market in recent weeks: some high-street lenders have raised the rates on five and 10-year fixed rate mortgages, while others have improved their offers on two-year fixes. But brokers said HSBC’s strength in the market would make it harder for smaller lenders to sustain very low rates for long.
Ray Boulger, from mortgage broker John Charcol, said he expected HSBC’s move to have a knock-on effect. “It’s likely to be not very long before others follow,” he said.
Tracker rates, which follow base rates at a set margin, were also likely to follow suit, he said.
HSBC’s changes are unusually large: its lowest two-year fixed rate mortgage is now a 1.29 per cent deal with a fee of £999. The 0.3 percentage point rise compares with a typical shift of 0.15-0.2 percentage points. HSBC also raised rates on its cheapest 10-year deal by half a percentage point.
Charlotte Nelson from Moneyfacts website said: “With market uncertainty and rising swap rates, it is increasingly difficult for providers to offer some of the lower deals in the market.”
