Squeezed Britain: Lenders jumping the gun as interest rates kept on hold
MORTGAGE lenders are under pressure to cut the extra costs they piled on to home loans in advance of a Bank of England interest rate rise that did not happen yesterday.
Four of the UK’s biggest banks and building societies, and a raft of small lenders, have raised rates and pulled their cheapest deals in recent days.
But the central bank defied market expectations and held the base rate at its record low of 0.1 per cent.
Nicky Stevenson, managing director of estate agents Fine & Country, said: “Some buyers will feel aggrieved that, thanks to large hints dropped in the past month, several high street lenders have jumped the gun and increased borrowing costs.
“This has already begun to squeeze affordability. And, with rate rises a question of when, not if, then borrowing costs are unlikely to revert back to what they were simply because of a small delay.”
The Bank of England did warn a rate increase will come – with higher energy prices expected to push inflation from 3.1 per cent to 4.5 this month and hit around 5 per cent next April, the highest level for a decade.
Decision
Governor Andrew Bailey said: “It will be necessary over coming months to increase the Bank Rate in order to return CPI (Consumer Prices Index) inflation sustainably to the two per cent target.”
Meanwhile, the cost of the cheapest mortgage deal had risen by a third in a week, says analysis by data firm Defaqto.And some rates increased by as much as one per cent. Such a hike can equate to hundreds of pounds more paid in interest each year.
Christine Jardine, the Liberal Democrat Treasury spokesperson, said: “Rising mortgage costs are the last thing cash-strapped homeowners need. With the base rate still at rock bottom, lenders must back down from prematurely hiking costs.”
And Paula Higgins, of campaign group HomeOwners Alliance, added: “Lenders can’t have it both ways and it doesn’t seem fair that homeowners are being passed higher costs.”
HSBC yesterday increased the charges on 28 of its mortgage deals, the second time in a week the bank has made its loans more expensive.
The Nationwide also withdrew all tracker loans overnight, in anticipation of an upward decision by the Bank’s Monetary Policy Committee (MPC) at noon yesterday.
The UK’s biggest building society also hiked rates on some first-time buyer and re-mortgage deals by up to 0.35 percentage points.
Meanwhile NatWest, which also raised rates just hours after last week’s Spending Review, increased the prices of its two and five-year deals overnight. Barclays and Platform, part of the Co-operative Bank, increased costs in recent weeks. While lenders including TSB have both hiked and dropped rates on deals.
Smaller banks have raised the cost of mortgages too. Coventry Building Society increased rates on some deals for borrowers with a small deposit of up to 10 per cent. But homeowners will still be able
to find affordable deals, according to Tomer Aboody, director of property lender MT Finance.
He said: “Competition on mortgages will still be high, even if interest rates rise in future.
“There may not be the plethora of sub-one per cent deals but mortgages will still be affordable and on the relatively cheap side.”
Minutes of the Bank’s latest decision showed members of the ninestrong MPC voted seven to two in favour of keeping rates unchanged.
Two members were outvoted in calling for a rise to 0.25 per cent.
Financial markets had expected an increase in the wake of soaring energy and fuel costs and comments from Governor Bailey that policymakers would “act” to bring inflation under control.
However Giles Coghlan, chief currency analyst at HYCM, said raising rates risked harming the Covid bounceback for businesses.
He added: “It would also discourage people to spend pent-up savings. All of this would damage the post-pandemic recovery and could result in ‘stagflation’, where inflation rises but the economy stagnates.
“These are complicated times. There are converging trends – supply chain issues, the energy crisis, COP26. But when it comes to interest rates, we will have to wait for a seemingly inevitable rise.” Holding rates prompted a plunge in the value of sterling. The pound fell sharply, having risen recently on expectations of a rise.
It was down more than one per cent against the US dollar and 0.8 per cent against the euro.
Jay Mawji, managing director of online trading provider IX Prime, said: “The Bank appears to be gambling that a good chunk of the current inflationary problems are temporary and will fix themselves without monetary intervention.
“Once again, no end in sight to the era of rock-bottom interest rates. This will come as a bitter blow to savers, who continue to see inflation erode the buying power of savings.”