Santander has announced it is increasing the interest rates a number of its fixed rate mortgage deals, just days after it cut them.
Starting from tomorrow, the bank says it is increasing all fixed rate deals for home buyers and those remortgaging.
It is also withdrawing all its exclusive first-time buyer fixed rate deals, as well as a three-year fixed rate product for home buyers with a 10 per cent deposit.
Changing tack: Santander has announced it is increasing the interest rates on a number of its fixed rate mortgage deals, just days after it cut them
Santander’s rate hikes will be relatively small, ranging between 0.05 and 0.2 percentage points.
Last week, Santander cut rates on a number of its fixed rate deals. It reduced its lowest two-year fixed rate from 4.55 per cent to 4.1 per cent, which became an instant best-buy.
Its announcement today represents a shift away from the mortgage price war in recent weeks, which saw more than 50 lenders lower residential rates, since 1 January.
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Ben Perks, managing director at Orchard Financial Advisers said: ‘The constant rate reduction announcements we were enjoying were destined to stop at some point.
‘Hopefully this is just Santander “turning the tap off” because they priced so competitively last week and have seen an influx of applications.
‘We will see some ups and downs over the coming weeks so borrowers shouldn’t be overly concerned.’
Why is Santander increasing rates?
From Wednesday last week, experts began warning that mortgage rates were about to stop falling, after the surprise jump in inflation.
The 4 per cent inflation reading for December came in slightly higher than the 3.8 per cent that markets had forecast.
This led to financial markets rolling back slightly on their forecasts for base rate cuts this year.
In terms of fixed rate mortgage lending, market expectations are typically reflected in Sonia swap rates.
These swap rates show what banks and building societies think the future holds concerning interest rates and help guide their fixed rate pricing.
Rare: Many of the cheapest mortgage rates are very close to swap rates – which suggests they could be about to rise
Will there be more mortgage rate increases?
Five-year swaps are currently at 3.69 per cent and two-year swaps are at 4.25 per cent – both trending well below the current base rate. This is up from 3.4 per cent and 4.04 per cent at the start of the year.
Mortgage advisor, Chris Sykes, of Private Finance told This is Money last week that it is very rare for the lowest priced mortgage rates to go below swap rates.
In the case of Santander, it did exactly that. Its 4.1 per cent best-buy two-year fix was cheaper than the 4.25 per cent two-year swap rate.
Justin Moy, managing director at EHF Mortgages said: ‘Recent increases in swap rates have caused a few lenders to increase rates over the past week or so.
‘Meanwhile, others are still launching cheaper deals – but they may restrict availability for a few days whilst borrowers and brokers scramble for alternative deals.
‘I suspect the overall trend of rate reductions will continue as predicted, but a few bumps along the way are inevitable.
‘This emphasises the need to work with mortgage brokers who can continue to look for the best deals in a changing market, and prospective borrowers need to have their documents ready for any applications to avoid disappointment.’
Some mortgage brokers also believe the rate increases have more to do with Santander struggling with large inflows of customers, rather than any sign that mortgage rates are going to begin rising again across the board.
David Sharpstone, director at CIS Mortgage Advice added: ‘Santander has long suffered from inconsistent service levels, and as soon as they loosen the tap the flow of applications increases, then their time to offer decreases.
‘I suspect this is more an application management response than anything to have market-wide concerns about.’
