Banks to pull cheap deals on home loans
Borrowers warned best mortgage rates will be axed next week as economy picks up
BANKS and building societies will begin to withdraw their best mortgage deals next week as home owners scramble to beat the expected rise in interest rates this winter.
Two of Britain’s biggest lenders, Barclays and Santander, are planning increases for Monday and Tuesday that will add hundreds of pounds to the cost of new loans, The Daily Telegraph understands.
Experts warned of a “domino effect” as rival banks pull their most attractive offers to avoid being deluged with applications for fixed-rate deals.
Figures have shown the number of people remortgaging has risen by a fifth, with families switching from variable-rate mortgages as the era of rock- bottom interest rates nears its end. Last week Mark Carney, Governor of the Bank of England, announced rates would start increasing by the end of the year, something many had anticipated.
David Hollingworth, of mortgage brokerage London & Country, said: “We have all become used to rates going down over the past few years, but the party is over. The incredibly cheap, record-low deals on offer today will soon be gone, possibly never to return.”
Even before the warnings, borrowers were locking into cheap, fixed-rate home loans with greater gusto, encouraged in part by a major price war as lenders battled for custom.
Yesterday, the British Bankers’ Association reported that 23,985 borrowers remortgaged their homes in June, a 20 per cent rise year-on-year.
Mortgage brokers said the rush by families to protect their finances would “intensify” as the best deals disappear from the market.
On Monday, Barclays is expected to increase the rate on its popular fiveyear mortgage from 2.39 per cent to 2.59 per cent. Its new deal will be £240 a year more expensive for someone with a £200,000 mortgage, calculations show. It is also expected to increase the rate on its market-leading 10-year loan, currently at 2.99 per cent, by as much as 0.26 percentage points, adding more than £300 to the typical annual mortgage repayment.
On Tuesday, Santander is expected to increase rates by around 0.1 of a percentage point. Yorkshire Building Society is also understood to be considering changing its rates.
Mr Hollingworth said: “The good news is that strong competition should keep a number of good deals out there, but lenders can’t hold on forever with rate rises rumoured to be around the corner.”
He said some lenders would be forced to increase their rates because they would not be able to cope with a surge in business.
Mark Harris, the chief executive of SPF Private Clients, one of Britain’s biggest brokers, said the cost to banks of lending money had risen substantially since March and the effects were finally being passed on to customers.
He added: “By the time the Bank of England raises rates, which it says could be at the turn of the year, the best rates will have long gone.”
Adrian Anderson, the director of mortgage broker Anderson Harris, said: “Fixed rates are only going to get more expensive; if borrowers wait until interest rates are actually rising before securing one then they will pay a lot more than they would now.”
The brokers said inquiries about remortgaging had increased since the Bank of England gave its strongest indication yet that a rate rise was imminent. Bank Rate has been at a record low of 0.5 per cent for six years and any rise would be felt by millions of home owners on variable deals.
The first increase is expected to be 0.25 percentage points. The knock-on effect for borrowers would be an increase in the cost of the typical variable-rate mortgages of around £30 a month.
Millions of borrowers are on banks’ standard variable rates, which can be altered at any time, or have taken socalled “tracker” deals that rise in line with Bank Rate.