Some finance giants have begun raising the cost of new home loans amid fears the Budget will mean that the UK faces higher interest rates than expected.
Skipton Building Society and Coventry Building Society have both announced rate increases from next week following predictions that the Budget means higher inflation and interest rates than were previously forecast.
City experts have been predicting the Bank of England would cut the base rate twice ahead of Christmas, however many now say there is likely to be one at most.
At the same time, so-called swap rates, which are the interest rates that financial institutions use for lending to each other, have been rising, which will feed through to more expensive fixed rate mortgages.
Virgin Money was the first to increase rates by up to 0.15 of a percentage point, while Halifax has raised some rates and cut others.
The Office for Budget Responsibility said it now expects the Bank of England base rate to fall from its current figure of 5 percent to 3.5 percent by 2029, which is around 0.5 percentage points higher than its March forecast and 0.25 percentage points higher than before the Budget.
The OBR also forecast that the average mortgage rate would rise from 3.7 percent in 2024 to 4.5 percent in 2027. The average rate on a five-year fix on Thursday was 5.09 percent, while a two-year fix was 5.39 percent.
The Bank of England is meeting next week to vote on interest rates, currently at 5pc and the betting on an immediate cut has fallen from a likelihood of 95 percent to 77 percent.
Adrian Anderson, a mortgage broker at Anderson Harris, warned: “The general direction of travel over the next couple of weeks for fixed-rate mortgages will be upwards. When banks reprice next week we’ll see increases for virtually all the lenders.
“It’s confusing for the consumer. The basic fact is that since banks have reacted to the Budget, bond markets and gilts haven’t reacted well. Swap rates [the main pricing mechanism behind mortgage rates] have increased quite significantly. Base rate will still be reducing, but probably not quite as quickly. There will be a bit more mortgage pain for a bit longer.”
David Hollingworth, of L&C Mortgages, told the Telegraph: “It’s confusing times for mortgage borrowers when the expectation is for a base rate cut next week but fixed rates look set to rise.
“If market rates remain at current levels, it looks inevitable that more lenders will have to rethink their rates. This isn’t the radical spike in rates that have blighted mortgage rates in the past couple of years. But if funding costs don’t ease, the sub-4pc five-year fixed rates that we’ve become used to in recent months could be under threat.
“Borrowers currently considering a fixed rate option should move quickly to secure a deal as we’re seeing some rates withdraw with very little notice.”
