Nationwide mortgage rates go up - what could this mean for you?

The latest core inflation figures remain stubbornly high, and there are expectations other lenders could follow Nationwide's lead - Shehab Khan explains

Nationwide, Britain's biggest lender, has increased some of its mortgage rates for new borrowing by up to 0.45 percentage points.

In May, Office for National Statistics (ONS) figures showed inflation slowed to 8.7% in April, although the fall had been expected to be far greater, with experts pencilling in a drop to 8.2%.

The UK economy is now expected to see the highest inflation rate and nearly the slowest growth of the group of seven (G7) advanced economies this year, according to analysis from the Organisation for Economic Co-operation and Development (OECD).

Only Germany, which fell into a recession over the start of the year and is set to stagnate throughout 2023, will perform worse than the UK, the new projections anticipate.

Consequently, swap rates, which are what lenders use to set the price of mortgages, have been rising and some other lenders have also been tweaking their rates upwards.

Against this kind of climate, Nationwide said its move will ensure rates "remain sustainable."

"In the current economic environment, swap rates have continued to fluctuate and, more recently, increase, leading to rate rises across the market," a Nationwide spokesperson said.

"This will ensure our mortgage rates remain sustainable."

Exactly how much are rates rising?

The rate increases only affect customers taking out a new mortgage deal.

For certain Nationwide customers, these deals could increase:

  • For first-time buyers and movers - between 0.05 and 0.40 percentage points on products up to a 95% loan-to-value (LTV, the ratio of what you borrow as a mortgage against how much you pay as a deposit);

  • For those looking to remortgage - between 0.05 and 0.40 percentage on products up to 90% LTV;

  • For Switcher, additional borrowing and existing customer moving home rates - between 0.05 and 0.45 percentage points;

  • Shared equity rates - by up to 0.45 percentage points.

According to figures from financial information website Moneyfacts, the average two-year fixed-rate mortgage on the market is now 5.79% and the average five-year fix is 5.47%.

At the end of May, those figures were 5.45% and 5.12% respectively.

Why are lenders hiking interest rates again?

Lenders are reacting to an expectation that the Bank of England will increase interest rates from the current rate of 4.5% - possibly even to 5.5%.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: "The markets have reacted negatively on the back of expectations as to where inflation would be by now, versus the reality.

"Fixed-rate mortgage pricing had already been rising with a number of lenders repricing recently or giving a heads up that they intend to do so.

"Santander and Halifax are just two lenders who have recently increased their rates and others are likely to follow suit, with short notice."

Rob Dix, host of the Property Podcast, pinpoints inflation as the key metric to follow.

"As a result of inflation falling by less than expected, markets are pricing in interest rates staying higher for longer than previously anticipated," he told ITV News.

"This is feeding through into fixed rate mortgage products, and we'll probably see most lenders raising rates by somewhere around 0.4%."

A series of interest rate rises have hampered homeowners' budgets. Credit: PA

Why is UK inflation remaining stubbornly high?

Inflation in Britain is forecast to average at 6.9% for 2023, the OECD found.

The UK's high inflationary rate has been blamed partly due to elevated labour costs as wages rise, and the fact that Britain is more exposed to lofty global energy prices.

Clare Lombardelli, the OECDs chief economist, said: "In our projections it is expected to see faster fall in inflation, which is set to return in 2024 towards target."

She added the rate is set to drop sharply to average 2.6% next year.

When will interest rates go back down?

Mr Harris remains confident mortgage rates will "shortly peak" and the reductions, when they arrive, "will be as quick as the recent rises".

But because swap rates, which underpin the pricing of fixed-rate mortgages, are so volatile it can be difficult to predict the future.

Rachel Springall, a finance expert at Moneyfacts, said: "These increases by Nationwide come at a time of volatility surrounding future interest rates, and it is a move we have seen from other lenders through uncertain times as they adjust their pricing."

She added: "When lenders withdraw mortgage products, it can be in reaction to interest rate volatility, or even down to demand.

"However, withdrawals may influence other lenders to follow suit and reconsider their own propositions."

In May, Nationwide announced around 3.4 million of the building society's eligible members are in line for a £100 windfall, to be distributed to those holding a qualifying current account plus either a qualifying savings or mortgage product.

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What should you do if you want a new mortgage?

Anyone looking to secure a new mortgage should seek expert advice, as the best deal depends on individual circumstances.

Ms Springall said: "Anyone considering a new mortgage would be wise to seek advice to go over the full package of any deal to find the right deal for them."

Luke Hickmore, the investment director at Abrdn, believes rates may ease after an initial surge of banks raising interest.

"The evidence we saw back with the fiscal event in the autumn with Liz Truss is you get that initial wave of changes in mortgage rates and then it eases off as competition kicks in," he told ITV News.

"They are very keen to be involved in the mortgage market and it's a very competitive market.

"That might limit it to some degree, but if we see another month with another sticky inflation number, I think you will see much bigger rises much, much quicker from a much wider range of banks."

Mr Dix also looked at the possibility of rates falling in the near future - if inflation can be cut down.

"As always, some lenders will be more competitive than others due to their keenness to do business, so it's essential to work with a good mortgage broker to find the best rates," he said.

"But in general, I think this increase is something we'll see across the board rather than being specific to Nationwide.

"This is obviously unwelcome news for buyers who are already facing dramatically higher mortgage costs than they were a year ago.

Is it time to fix your mortgage?

Mr Dix said: "I don't see fixed rates increasing much from here, even if there are a couple more base rate hikes ahead, but we'll know more when next month's inflation figures are released.

"If inflation falls back, we may see rates being cut again."