Santander raises mortgage rates as market gloom deepens

Santander announced it will raise interest rates on a range of homeowner and buy-to-let mortgages on Monday, increasing some fixed deals by as much as 0.13 percentage points amid weaker economic sentiment and rising government borrowing costs.

The lender said prices on new home-mover two-, three- and five-year fixed-rate mortgages will increase by up to 0.13 percentage points, while ten-year fixes will rise by up to 0.08 percentage points. First-time buyer deals will be increased by up to 0.12 percentage points. Santander also said two-year remortgage rates for borrowers with 40% equity or more will climb 0.10 percentage points, and borrowers with 25% to 40% equity choosing three-, five- and ten-year fixes will see increases of 0.11 percentage points.

The move follows a run of increases from other major lenders. HSBC raised mortgage rates earlier in the week, and Barclays put up prices on a selection of deals less than 10 days ago. Marketwide average rates have edged higher in recent days: Moneyfacts data shows the typical five-year fix at about 5.02% and the average two-year fix at roughly 4.98%.

Lenders and market analysts point to several drivers behind the tightening. Long-term UK government bond yields — gilts — climbed to a 27-year high last week, reflecting investor unease about public finances and concerns that the Autumn Budget at the end of November could include measures such as tax rises. Bank of England Governor Andrew Bailey has said there is "considerably more doubt" about further interest-rate cuts this year, a view reinforced after a stronger-than-expected inflation reading for July of 3.8% was published in late August.

Mortgage brokers said the fresh increases add to pressure on borrowers. Jack Tutton, director at SJ Mortgages in Fareham, told the news agency Newspage that "the gloom for mortgage holders continues as Santander follows many other lenders in increasing their rates. Instability in government is causing chaos in the finance markets, which is why we are seeing mortgage rates increase. Given that the Budget is approaching, there are no signs that things will get better for mortgage holders in the short term at least." Ranald Mitchell, director of Norwich-based Charwin Mortgages, advised borrowers to act promptly, saying delaying could mean paying more because the best deals can be short-lived.

Most UK lenders permit borrowers to secure a new deal up to six months before their current product ends and typically allow flexibility to switch if a cheaper offer appears before the new rate takes effect. Industry observers say that option provides some leeway for consumers but warned that persistently higher gilt yields and uncertainty about fiscal policy could keep upward pressure on mortgage pricing until there is greater clarity on the economic outlook.

Despite the recent rises, current average two- and five-year fixed rates remain below the peaks seen in August 2023, when they reached about 6.86% and 6.37%, respectively. Lenders and market commentators say the coming weeks, including commentary around the Autumn Budget and incoming economic data, will be watched closely by mortgage markets and borrowers considering new deals.