Santander raises mortgage rates after jump in inflation
SANTANDER has become the first major lender to increase mortgage rates this year after last week’s surprise rise in inflation.
After launching a headline five year fixed-rate mortgage with an interest rate of 3.89pc just two weeks ago, the high street lender has now increased rates by up to 0.20 percentage points across a range of deals. Inflation rose to 4pc in December, according to official data published last week, up from 3.9pc the previous month. Markets had priced in a fall to 3.8pc.
The news nudged up the yield on government bonds – which banks use to set long-term lending rates – and prompted mortgage brokers to predict a pause in a price war started in the new year. Aaron Strutt, of brokerage Trinity Financial, said even with this decrease Santander’s home loans remained good value for money. “There is a huge amount of competition in the market now and if a mortgage lender increases rates, one of its competitors will be keen to take the business,” he said.
“Two-year fixes currently start from 4.08pc and five-year fixes from 3.84pc.
We have been saying for a while that rates may start to level off and that there may not be many more price reductions for a while, but the pricing improvements keep coming.”
This week, Nationwide announced it would shave off up to 0.81 percentage points from its fixed rates.
Robert Gardiner, chief economist at Nationwide, said the uncertainty in swap rates – a leading indicator for mortgage rates – was being driven predominantly by uncertainty over what will happen to the Bank Rate at next week’s meeting. Swap rates have wobbled over the past seven days following the surprise rise in inflation.
Mr Gardiner said conflict in the Red Sea was “part of a broader picture of uncertainty”, and that it could pose a “serious risk” to UK inflation if it starts to drive up trade and commodity prices.
He said: “The next [Bank] meeting is really important because it will include projections and forecasts. It’s that time of year where the Bank does a stock take of the economy’s supply side.
“It’s not just that the demand outlook is weak – the supply side needs to improve too and there’s no evidence that this is changing.”