Five major banks hike fixed rate mortgages: Why are costs RISING after the Bank of England cut?

Five of Britain’s biggest mortgage lenders are increasing rates, despite the Bank of England cutting interest rates last week.

Santander, TSB, HSBC, Virgin Money and Nationwide Building Society have all announced prices across their fixed rate mortgage deals will rise this week.

Last week, Nationwide, TSB and Santander were among a number of lenders to announce they were cutting mortgage rates across tracker and variable rate deals, in response to the Bank of England cutting base rate from 5 per cent to 4.75 per cent, on Thursday.

However, this week they are doing the opposite when it comes to fixed rate mortgage deals.

This will be a concern for mortgage borrowers given that the vast majority of households are on fixed rate deals.

Around 82 per cent of mortgaged households are on fixed rate mortgages, according to UK Finance. That equates to almost 7 million homes.

Most households are protected from any immediate rate changes until their current deal ends, but the Bank of England said in its November Monetary Policy Report that about 800,000 fixed rate mortgages, currently on rates of 3 per cent or less, will come up for renewal per year until the end of 2027.

Santander has announced increases of up to 0.29 per cent across its residential fixed rates for purchases and remortgages.

Alongside Santander, HSBC and TSB are also upping rates. HSBC won’t reveal the changes until tomorrow. Meanwhile, TSB increased fixed rates by up to 0.3 per cent yesterday.

Nationwide also announced it will be increasing some of its fixed rates from tomorrow. 

Britain’s biggest building society is increasing some of its two, three and five-year fixed rate products by up to 0.2 per cent.

It says these are reflective of the current swap rate environment and increase in mortgage rates seen across the market in recent weeks. 

And finally, this afternoon, Virgin Money announced it is increasing fixed rates today for home buyers, remortgages and buy-to-let by up to 0.25 per cent. These will come into effect from 8pm tonight. 

Why are banks increasing fixed rate mortgages? 

The hikes to rates may seem counterintuitive given the Bank of England’s recent decision to lower the base rate to 4.75 per cent – the second reduction this year. 

Mortgage brokers believe this is likely due to the rising cost of funding as a result of heightened inflation expectations after the Labour Budget and Trump election win. 

Rohit Kohli, director at The Mortgage Stop told news agency, Newspage: ‘Many borrowers will be left scratching their heads as to why, less than a week after the Bank of England cut the base rate by 0.25 per cent, lenders like TSB are increasing fixed rates. 

‘The markets are still feeling the aftershocks of the Labour Budget. Although it wasn’t as disastrous as the mini-Budget, the longer-term cost of borrowing continues to rise. 

‘Gilt yields and swap rates are reacting not only to budgetary policy but also to geopolitical uncertainties, including Trump’s re-election to the White House. Anyone holding out for big cuts in interest rates is taking a gamble for now.’

Second cut: The Bank of England lowered base rate 0.25% to 4.75% in November 2024 but fixed mortgages rates are now rising

John Fraser-Tucker, head of mortgages at broker Mojo Mortgages said: ‘While the Bank of England’s decision to lower the Bank Rate last week might lead some to expect across-the-board reductions in mortgage rates, it’s important to understand that the mortgage market doesn’t always move in perfect sync with the Bank of England’s base rate decision.

‘Fixed-rate mortgages, in particular, are influenced by a complex array of factors beyond just the Bank Rate. 

‘These can include the lender’s own funding costs, their view on future economic conditions, competitive positioning in the market, and even their internal goals for new business.’

Fixed-rate mortgage pricing is also largely based on Sonia swap rates – the inter-bank lending rate, based on future interest rate expectations.

When Sonia swaps rise sufficiently it often results in fixed mortgage rates going up, and vice versa when they fall.

As of 8 November, five-year swaps were at 3.97 per cent and two-year swaps were at 4.19 per cent. 

Five-year swaps are up from  3.87 per cent on 29 October – the day before the Budget. They are up from 3.7 per cent on 24 October.

‘Adding to the pressure, swap rates—key indicators used by lenders to price fixed-rate mortgages—have edged upward, further necessitating these adjustments,’ says Nicholas Mendes, mortgage technical manager at John Charcol.

‘The combination of market dynamics and rising swap rates highlights the difficult landscape borrowers are navigating.’

What should mortgage borrowers do? 

The advice to borrowers is simple: lock in a new fixed rate deal as soon as possible to avoid rates rising further.

A new mortgage offer often lasts for up to six months meaning homeowners can lock in a new rate well ahead of their current fixed rate deal ending. 

‘For clients nearing the end of their fixed-rate terms, it’s essential not to delay in the hope that rates will revert to levels seen weeks ago,’ said Mendes. 

‘Securing a deal now provides certainty in an uncertain market. There is always the option to review and adjust if circumstances change but acting promptly minimises exposure to further rate increases.

‘This development underscores the importance of staying informed and proactive when managing mortgage commitments in today’s rapidly shifting financial environment.’