Santander raises mortgage rates as lenders react to higher gilt yields and uncertain outlook

Santander said it would raise prices on a range of homeowner and buy-to-let mortgages on Thursday, increasing some fixed-rate deals by as much as 0.13 percentage points as lenders respond to renewed upward pressure on market borrowing costs.

The bank said it would increase the price of all of its new home-mover mortgages on two-, three- and five-year fixed rates by up to 0.13 percentage points, while 10-year fixes will rise by up to 0.08 percentage points. First-time buyer deals are being increased by up to 0.12 percentage points. Santander also raised two-year remortgage rates for borrowers with 40% equity or more by 0.10 percentage points; borrowers with 25% to 40% equity choosing three-, five- and 10-year fixes will see increases of 0.11 percentage points.

The move follows a series of rate rises across the mortgage market this month, with HSBC increasing some mortgage prices on Monday and Barclays putting up rates less than 10 days earlier. Lenders have pointed to a combination of higher long-term government borrowing costs, shifts in swap markets that influence future fixed-rate pricing, and a less certain outlook for Bank of England policy as the reasons for tightening mortgage pricing.

Gilt yields rose to a 27-year high last week amid investor concern about the public finances and the possibility of tax changes ahead of the Autumn Budget at the end of November, lifting the cost for banks to fund fixed-rate lending. That pressure on long-term yields has been reflected in swap rates, which help determine where fixed mortgage rates might be in two to five years and therefore affect the prices banks set today.

Bank of England Governor Andrew Bailey last week said there was "considerably more doubt" about further interest rate cuts this year after a higher-than-expected inflation reading for July of 3.8% was published in late August. The comments have added to market caution about the timing and extent of any rate reductions from the central bank.

Average mortgage pricing across the market has edged higher in recent days. Moneyfacts reported the typical five-year fixed mortgage at about 5.02% and the average two-year fix at 4.98%. Those rates remain below the peaks seen in August 2023, when typical five- and two-year fixes reached about 6.37% and 6.86% respectively.

Mortgage brokers and industry figures warned borrowers to be mindful of the changing environment. Jack Tutton, director at SJ Mortgages in Fareham, told the news agency Newspage that the increases continued a gloomy trend for mortgage holders and reflected instability in government and finance markets. He said borrowers should be prepared for higher costs.

Ranald Mitchell, director at Charwin Mortgages in Norwich, urged those facing remortgage deadlines to consider securing deals sooner rather than later. Most lenders allow borrowers to lock in a new deal up to six months before their current rate expires, and many permit customers to switch if they find a cheaper option before the new deal takes effect.

Analysts expect mortgage rates to continue to tick up gradually if gilt yields and swap rates remain elevated, although the timing and scale of any central bank action will be key to future moves. For now, lenders appear to be pricing in a more cautious outlook, and borrowers weighing options are being advised to review their plans and consider fixed deals if they seek certainty over repayments.

Santander's announcement is the latest sign that the mortgage market is responding to shifts in the wider financial environment rather than a single lender decision. Market participants said the pace of change will depend on developments in gilt markets, upcoming economic data, and government fiscal policy ahead of the Autumn Budget.