Major lenders have pulled all of their sub-4% home loans this week, despite a second Bank of England base rate cut.
Barclays and NatWest became the latest high street mortgage lenders to announce an upward increase to their fixed mortgage rates today.
This follows similar hikes this week from Santander, HSBC, Nationwide and TSB among others, as lenders scale back their expectations of the pace of future central bank cuts.
Allied Irish Bank is currently the only lender of scale to offer rates below 4%, L&C Mortgages points out.
This comes despite the Bank of England cutting the cost of borrowing by 0.25% to 4.75% last week. It was the Bank’s second rate cut following a 0.25% reduction in August, which was its first in four years.
However, the Bank’s rate-setting Monetary Policy Committee minutes warned that Chancellor Rachel Reeves’ Budget last month, which will spend almost £70bn over the next five years, will push up inflation next year.
The body estimates quarterly economic growth in a year’s time will be 1.7% as opposed to the 0.9% it was forecasting in August.
But along with this, inflation will be 2.7% rather than 2.2% and it will take a year longer, until early 2027, for the cost of living to return to its 2% target. The cost of borrowing is currently 1.7%.
Campaign threats from US President-elect Donald Trump has caused further uncertainty.
Trump has promised to impose tariffs of at least 10% on European imports, primarily targeted on the auto industry, rising to 60% across a range of Chinese imports.
In response, Goldman Sachs downgraded the UK economy to grow by 1.4% next year, down from a previous forecast of 1.6%, in a report earlier this month. It expects growth to remain at 1.4 per cent in 2026.
L&C Mortgages associate director David Hollingworth says: “The slew of rate changes in recent weeks has continued to push rates higher, reflecting the higher costs for lenders, as the market outlook for rates has edged toward a ‘higher for longer’ expectation.
“A number of lenders managed to hold fixed rates below 4%, until now. As sharper rates have fallen away an air of inevitability was building and now all major UK lender’s fixed rates have once again edged back above 4%.”
Hollingworth adds: “Unwelcome as it is for borrowers, it’s important to note that there’s no sign of rates skyrocketing as they have in recent years.
“The Bank of England base rate is still expected to fall over time, but markets are questioning if the pace will be as rapid.”
Money markets only expect the Bank of England to cut rates twice next year, compared with at least five quarter-point cuts they predict for the European Central Bank as the eurozone economy slows.
