Two of UK’s biggest lenders to raise mortgage rates

Two of the UK’s biggest lenders, Halifax and Nationwide, have announced plans to raise mortgage rates. This move comes as the housing market continues to thrive despite the ongoing challenges of the global pandemic.

Halifax, part of the Lloyds Banking Group, has revealed that it will increase rates by 0.15% for both two and five-year fixed-rate mortgages. Nationwide, on the other hand, will raise rates by 0.10% for two and five-year fixed-rate mortgages, as well as products for shared ownership and Help to Buy equity loan customers.

These rate hikes are likely to affect thousands of borrowers across the country, potentially leading to increased monthly mortgage payments. The decision by both lenders can be attributed to several factors, including rising costs of borrowing for banks, as well as increased demand for mortgages due to the government’s stamp duty holiday.

The stamp duty holiday, originally introduced by the UK government in July 2020, allowed homebuyers to temporarily save up to £15,000 in tax on property purchases. This incentive led to a surge in housing market activity, with many people rushing to take advantage of the savings. As a result, mortgage lenders experienced a higher-than-usual influx of applications, putting strain on their resources.

Furthermore, the increased demand for mortgages has led to a rise in house prices across the country. According to the Office for National Statistics, UK house prices rose by a record 10.2% in the year to March 2021. This surge in prices has prompted lenders to reassess the risk associated with lending, as higher property values can increase the potential losses in the event of default.

Additionally, lenders are facing higher costs of borrowing due to global economic factors such as inflation and increased bond yields. Mortgage rates are closely linked to the interest rates lenders themselves must pay when borrowing money from the market. As these rates rise, it becomes more expensive for lenders to fund new mortgages, leading to an adjustment for borrowers.

While these rate hikes may pose financial challenges for some borrowers, it’s important to note that mortgage rates in the UK continue to be historically low. Compared to previous decades, interest rates on mortgages are still relatively affordable, allowing borrowers to access homeownership at a time when the property market is thriving.

It is worth considering that other lenders in the market may follow suit, raising their rates in line with Halifax and Nationwide. As the housing market remains buoyant, lenders must manage their risk exposure and ensure that their business remains sustainable in the long term.

Ultimately, the decision by Halifax and Nationwide to increase mortgage rates reflects the ongoing flux in the housing market. Borrowers should carefully consider their options and seek professional financial advice to navigate through these changes. The property market is ever-changing, and it’s important to stay informed and prepared for any future adjustments that may impact mortgage rates.

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