Nationwide hikes rates amid sell-off sparked by inflation fears

• Nationwide announced rise of up to 0.45 percentage points on some products 
• Gilts on course for the biggest rise, bar the mini-Budget, since 2008

Britain’s biggest building society scrambled to hike mortgage rates yesterday amid a bond market sell-off sparked by renewed fears about high inflation.

Nationwide announced a rise of up to 0.45 percentage points from today on some fixed and tracker home loan products – adding hundreds of pounds to annual repayments.

It was responding to soaring interest rates on financial markets gripped by turbulence reminiscent of the meltdown seen during Liz Truss’s short-lived premiership.

‘It’s feeling rather eerily like the post mini-Budget period last year,’ said Jamie Lennox, director of mortgage broker Dimora.

Nationwide said market interest rates had ‘continued to fluctuate and, more recently, increase, leading to rate rises’, adding: ‘This change will ensure our mortgage rates remain sustainable.’

Yields on UK bonds, known as gilts – the return demanded by investors for lending to the Government – are on course for the biggest rise, bar the mini-Budget, since 2008

Nationwide announced a rise of up to 0.45 percentage points from today on some fixed and tracker home loan products – adding hundreds of pounds to annual repayments

It was responding to soaring interest rates on financial markets gripped by turbulence reminiscent of the meltdown seen during Liz Truss’s (pictured) short-lived premiership

Yields on UK bonds, known as gilts – the return demanded by investors for lending to the Government – are on course for the biggest rise, bar the mini-Budget, since 2008.

Two-year gilts hit a rate of 4.55 per cent yesterday, with ten-year bonds on 4.38 per cent – both were recently below 3 per cent.

These help determine the rates offered by mortgage lenders, with Virgin Money putting selected rates up by 0.12 percentage points, and Halifax announcing hikes of up to 0.2 percentage points on some fixed rate remortgage deals.

John Cronin, at stockbroker Goodbody, said other lenders were likely to follow Nationwide’s lead, adding that ‘loan customers are going to suffer higher pricing’.

It marks a period of turmoil drawing parallels with the aftermath of Kwasi Kwarteng’s disastrous tax-cutting mini-Budget last autumn, when a bond market meltdown resulted in mortgage rates spiking.

After Mr Kwarteng’s plans were scrapped by his successor Jeremy Hunt, markets became calmer and mortgage rates came down.

Mr Hunt insists he is sticking to that plan, and is resisting a renewed clamour to cut taxes. Yet that has not stopped the bond markets from going haywire – again leaving home owners to pay the price.

The markets are responding to the likelihood of the Bank of England putting interest rates up by more than had been feared.

After Kwasi Kwarteng’s plans in his mini-budget were scrapped by his successor Jeremy Hunt, markets became calmer and mortgage rates came down

Mr Hunt (pictured) insists he is sticking to that plan, and is resisting a renewed clamour to cut taxes. Yet that has not stopped the bond markets from going haywire – again leaving home owners to pay the price

Those expectations were turbo-charged by figures this week showing that, while inflation fell below 10 per cent for the first time since last summer, it is coming down much slower than hoped.

And the Bank is likely to be particularly anxious about a measure of ‘core’ inflation – which strips out food and energy prices – rising to its highest level in 30 years.

That suggests price rises initially caused by factors such as the war in Ukraine may be becoming engrained in the economy.

The wider economic outlook is cheerier, with the IMF this week scrapping its recession warning for Britain.

Yet even that has a dark side for borrowers as the Bank of England will be less likely to worry that rate hikes are holding back GDP. Markets are now expecting the Bank rate to climb to 5.5 per cent later this year.

David Hollingworth, of mortgage broker London & Country, said sub 4 per cent deals on fixed rate mortgages were ‘a memory already’, adding: ‘Borrowers considering a fixed rate will want to move quickly.’

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