Sub-4% mortgage rates 'could disappear this week' as Santander announces hikes

The cheapest mortgage rates look set to go back above 4 per cent once again, after Santander announced it will be raising rates from tomorrow.

Santander is increasing all its standard residential fixed rates by between 0.23 and 0.34 percentage points.

Homeowners looking to remortgage will therefore have until the end of today to bag Santander’s five-year fixed rate at 3.99 per cent, with a £999 fee attached.

It is available to those remortgaging with at least 40 per cent equity in their home.

On the up: Santander has become the latest mortgage lender to announce rate rises

Equity-rich homeowners looking for the market leading two-year fix could previously get 4.39 per cent with Santander.

But now the cheapest deal available to them will jump to 4.52 per cent, with Halifax.

On a £200,000 mortgage being repaid over 20 years that’s the difference between paying £1,253 and £1,267 a month – a £336 saving over two years.

The changes will also leave HSBC as the sole mortgage lender on the market offering a residential five-year fixed rate below 4 per cent.

HSBC’s cheapest five-year fix, reserved for those buying with at least a 40 per cent deposit or remortgaging with at least 40 per cent equity, charges 3.99 per cent.

However, mortgage brokers expect HSBC’s market-leading rates won’t be around for much longer.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: ‘HSBC will be the final player in the sub-4 per cent five-year fix market once Santander has repriced upwards.

‘As borrowers inevitably flock towards HSBC for the best deal on the market, the lender will want to ensure its service levels are preserved so we would expect it to also to reprice upwards by the weekend.

Chris Sykes, technical director at Private Finance adds: ‘We could well see sub 4 per cent rates disappear this week.’

Up until the start of this month, mortgage rates were on a downward trajectory. In January alone, more than 50 lenders slashed their residential rates.

However, rates now appear to be back on the up. Since 1 February the average two-year fix has risen from 5.56 to 5.7 per cent, according to Moneyfacts.

The shift upwards has come thanks to a slight change in market expectations around future interest rates.

Markets now think a Bank of England base rate reduction before June is less likely.

At the start of this year, investors were betting rates could be cut to 3.75 per cent by Christmas.

But it is now forecast that rates will fall to just 4.75 per cent or 4.5 per cent this year – with the first move coming as late as September.

Mortgage brokers are urging anyone approaching the end of their current deal – or those on a tracker or standard variable rate – to consider fixing now.

Sykes said: ‘We’ve advised some clients to fix now as we may well have seen the bottom of rates for a little while.’

Nicholas Mendes, mortgage technical manager at broker John Charcol added: ‘Given the nature of the market, those who may be hesitant to commit to a deal should act quickly.

Mortgage expert: Chris Sykes thinks we could well see sub 4% rates disappear this week

‘While we anticipate a reduction in fixed rates, the timeline for this adjustment may be somewhat longer than initially expected.’

Mark Harris adds: ‘If borrowers see a rate they like the look of, they would be wise to secure it without delay for peace of mind. When they come to take out the product, if rates have fallen again, they can go for a cheaper rate.’

Market expectations and mortgage pricing is reflected in Sonia swap rates. At the start of the year two-year swaps were at 4.04 per cent and five year swaps were at 3.4 per cent.

As of 20 February, two-year swaps have risen at 4.52 per cent and five year swaps are at 3.96 per cent.

Some mortgage brokers think it could be a while before we see sub-4 per cent rates reappear – perhaps not until the Bank of England begins cutting the base rate.

‘I think it depends on the next few inflation and MPC figures,’ says Sykes. ‘But I don’t think we’ll see sub 4 per cent rates again until the Monetary Policy Committee reduces the base rate.’

Mark Harris adds: ‘We are in a period of pricing volatility, on the back of rising swap rates, which underpin the setting of fixed-rate mortgages.

‘All eyes will be on upcoming economic data as this will dictate where pricing will go in coming months.

‘Once the MPC’s intentions are better understood, markets could react quickly and cheaper pricing could return.’