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Highlights:
- Mortgage Rate Hikes Implemented: Santander has raised fixed mortgage rates for new buyers and remortgages by up to 0.29%, while variable tracker rates decline after the base rate cut.
- Economic Uncertainty Impacts Borrowing Costs: Rate increases follow a spike in wholesale rates, influenced by UK budget announcements and the recent US election.
- Bank of England Signals Caution: Chief economist Huw Pill warned of "sticky inflation," suggesting a cautious approach to further easing.
Banco Santander (LSE:BNC) has announced an increase in its fixed mortgage rates, aligning with several other UK lenders in response to ongoing economic uncertainty. The rate hikes come just as Huw Pill, the Bank of England’s chief economist, raised concerns over persistent inflation, emphasizing the challenges faced by policymakers in controlling price pressures.
New Rates for Fixed and Tracker Mortgages
Starting today, Santander has increased fixed mortgage rates for both new buyers and remortgage customers by up to 0.29%. Specific buy-to-let fixed rates have also seen a rise of 0.31%. However, borrowers on variable tracker mortgages will see a slight reduction in rates following the Bank of England’s decision last week to lower the base rate to 4.75%.
Despite the rate hikes, Santander noted that the majority of its customers are on fixed-rate mortgage deals, which provide some level of protection against immediate increases. The bank’s move mirrors actions taken by other UK lenders such as TSB, Virgin Money, and Nationwide, all of which have raised their mortgage rates recently.
Rising Swap Rates Drive Mortgage Increases
The decision to increase rates follows a sharp rise in swap rates, the wholesale rates used as a basis for mortgage pricing. Swap rates have spiked in the aftermath of Chancellor Rachel Reeves’s Budget announcement and the recent election of Donald Trump in the United States, both of which are expected to lead to increased borrowing costs globally.
This surge in wholesale rates has led lenders to adjust their pricing strategies, despite the Bank of England’s base rate cut. As a result, the average two-year fixed residential mortgage rate has risen to 5.43%, up from 5.42% just a day earlier, according to data from Moneyfacts. Five-year fixed rates have also increased, now standing at 5.16%.
Bank of England’s Cautious Approach
Huw Pill’s comments highlight the cautious stance being taken by the Bank of England despite recent inflationary pressures easing. He noted that while the reduction in UK inflation over the past year has been significant, the process of further monetary easing would likely be gradual.
"Pay growth remains quite sticky at elevated levels," Pill stated, referencing the latest labour market data. He pointed out that current wage growth figures are difficult to reconcile with the UK’s inflation target, suggesting ongoing challenges in bringing inflation down to desired levels.
Implications for Homeowners and Buyers
The increase in mortgage rates is expected to impact both prospective homebuyers and those looking to remortgage. While the majority of Santander’s customers are currently on fixed-rate deals, the rising costs of new fixed mortgages may deter some potential buyers and place additional financial strain on those nearing the end of their current terms.
With the UK economy facing headwinds from both domestic policy changes and international events, the outlook for mortgage rates remains uncertain. Market conditions and wholesale rate movements will continue to play a crucial role in shaping the lending landscape.
A Challenging Economic Environment
Santander’s rate adjustments highlight the broader challenges faced by the UK’s mortgage market as it grapples with ongoing economic uncertainty. The combination of rising swap rates, cautious central bank policies, and external economic influences has created a complex environment for lenders and borrowers alike.
As the Bank of England takes a measured approach to monetary easing and inflation remains a concern, homeowners may need to brace for continued fluctuations in borrowing costs. The decisions made by major lenders like Santander will be closely watched as indicators of broader market trends and economic sentiment in the months ahead.
