NatWest and Barclays Raise Mortgage Rates Again Amid Inflation and Market Uncertainty

Highlights:

• Second Mortgage Rate Hike in a Month: NatWest and Barclays raise fixed mortgage rates again, following similar moves by other lenders despite a recent base rate cut by the Bank of England.
• Inflation Worries Drive Market Sentiment: Rising concerns over inflation, spurred by increased UK government spending and new US trade policies, are pushing up interest rate expectations.
• Borrowers Face Rising Costs: Higher rates on the swaps market signal a challenging environment for borrowers, with further relief unlikely in the short term.

NatWest Group PLC (LSE:NWG) and Barclays PLC (LSE:BARC) have announced another round of mortgage rate hikes, marking their second increase in just one month. This move comes despite a recent cut in the Bank of England's base interest rate, highlighting growing market concerns about inflation and future economic policy.

Mortgage Rate Increases Defy BoE Rate Cut

Both NatWest and Barclays are raising their fixed mortgage rates, joining other major lenders like Santander in responding to shifting market dynamics. As of 14 November, NatWest increased its fixed rates by 35 basis points, while Barclays raised its five-year fixed rate from 3.96% to 4.28%.

Justin Moy, managing director at EHF Mortgages in Chelmsford, noted that NatWest was the "last one standing" before these increases, underscoring the widespread trend among lenders. He remarked, “These significant increases of up to 0.35% will hurt borrowers' pockets, as swap rates spiral off the recent uncertainty.”

Market Sentiment Shifts Amid Inflation Fears

The decision to hike rates follows changes in the swaps market, where five-year SONIA swaps rose to 4.05% and two-year swaps increased to 4.26% as of 12 November. This rise from previous levels of 3.8% and 4.0% indicates that investors are pricing in a slower pace of rate cuts by the Bank of England, driven by inflationary pressures.

Market sentiment has been influenced by the UK government's increased spending on public services such as the NHS and schools, as well as potential economic impacts from new US trade policies under President Donald Trump. Financial advisor David Stirling from Mint Mortgages & Protection noted, “The actual cost of money for banks has been increasing, adding pressure despite the base rate cut.”

Borrowers Feel the Strain

The unexpected rate hikes come as a disappointment to borrowers, who had hoped for relief following the Bank of England's decision to cut rates last week. However, financial advisors have warned that the current market dynamics make it difficult for lenders to pass on these cuts.

Stephen Perkins, managing director at Yellow Brick Mortgages, suggested that the situation may start to stabilize soon, but acknowledged the challenges facing the mortgage market. “We shouldn’t see continued rises, and things may soon start to calm down,” he said, offering a cautious outlook for the coming months.

Economic Outlook Remains Uncertain

The broader economic environment remains volatile, with concerns about persistent inflation and geopolitical factors creating headwinds for the mortgage market. Post-Budget analysis has added to the uncertainty, dampening the prospects of further interest rate cuts by the Bank of England in the near term.

While the recent mortgage rate hikes signal lenders’ cautious approach, they also reflect the broader challenges faced by borrowers navigating an unpredictable financial landscape. As the year-end approaches, the outlook for mortgage rates and inflation remains clouded, leaving market participants to brace for potential shifts in the economic environment.

In summary, the latest moves by NatWest and Barclays underscore the complex interplay between inflation expectations, government policy, and market sentiment, all of which are shaping the current mortgage landscape in the UK.