Five lenders pushed up mortgage rates at the start of the week as mortgage rates rise ahead of a Bank of England interest rate decision that some City analysts believe could produce a hike as soon as November. Barclays, TSB, Santander, Skipton Building Society and Nottingham Building Society all increased rates on residential products, with swap rate volatility cited as the primary driver.
Barclays raised rates across a range of products by nearly 0.2 per cent. Its two-year fixed rate now stands at 5.53 per cent, while its five-year fix moved to 5.48 per cent. High street unit TSB, which was acquired by Santander last year for £2.7bn, increased a batch of residential mortgage products by 0.15 per cent.
Swap rates and oil prices push mortgage rates rise across the market
The repricing reflects a shift in swap rates, which serve as the primary benchmark for fixed-rate mortgage pricing. Swap rates embody market expectations for future interest rates over two, five or ten-year terms, and have been pushed higher by the ongoing conflict in the Middle East, which has led investors and economists to revise their inflation expectations.
Brent crude, the international benchmark for oil prices, closed in on $100 per barrel on Tuesday morning, adding further pressure to the inflation outlook. Two-year gilt yields, which track short-term interest rate expectations, have been hovering around the 4.5 per cent mark for the past week.
According to financial information platform Moneyfacts, the average five-year fixed homeowner mortgage rate crept up to 5.68 per cent from 5.64 per cent on Friday, the highest average recorded since 11 May. The average two-year fixed rate rose to 5.63 per cent from 5.6 per cent over the same period.
‘The recent uplift in swap rates has started to filter into the pricing of fixed-rate mortgages, with more moves expected in the coming days,’ said Rachel Springall, finance expert at Moneyfacts. She described the renewed pressure on the swap rate market as making it ‘somewhat inevitable’ for lenders to respond.
Bank of England rate decision: Huw Pill urges action on 17 September
The Bank of England has held interest rates at 3.75 per cent, but its Monetary Policy Committee has struck a cautious tone at recent meetings. The committee is scheduled to meet next Thursday, with its next rate decision due on 17 September. Some City analysts have suggested a hike could come as soon as November.
Huw Pill, the Bank’s chief economist, has been among the more vocal advocates for an increase. He has urged his peers to act ‘clearly, promptly and decisively’ at the upcoming decision, and has criticised a ‘wait-and-see’ approach from colleagues who favour holding.
Pill’s hawkish position draws on a broader concern about the pace of rate cuts in recent years. According to City AM, he has repeatedly warned that interest rates were cut too quickly over the last two years from a peak of 5.25 per cent in mid-2023. That caution has been borne out by the subsequent inflation trajectory.
Inflation only briefly returned to the target rate of 2 per cent in mid-2024, as the transition between the Conservative and Labour governments took place. It then ramped up to a high of 3.8 per cent in the months that followed, as firms passed on some of the costs of Rachel Reeves’ £25bn hike to employers’ national insurance contributions onto consumers, City AM reported. That inflationary knock-on has kept pressure on the Monetary Policy Committee and shaped the case made by Pill and others for a tighter stance.
With Brent crude approaching $100 a barrel, gilt yields elevated and five-year fixed mortgage rates now at their highest average since May, the pressure on the committee when it meets on 17 September is unlikely to ease before the decision is made.
