UK Mortgage Rates Soar to New Highs Amid Funding Market Turmoil
UK mortgage rates have climbed to 5.13% for two-year fixes and 5.15% for five-year fixes, according to data from Rightmove's tracker using Podium data. This represents a rise of 0.08 percentage points in the past week for two-year fixes and 0.07 points for five-year fixes. The Bank of England has kept its base rate at 3.75%, but lenders are pricing their mortgages based on wholesale markets, specifically swap rates.
Swap rates have risen sharply, with two-year swaps reaching 4.26% from 4.06% a month earlier and five-year swaps increasing to 4.36% from 4.16%. The UK 10-year gilt yield has also surpassed 5%. Lenders are repricing their mortgage products in response, with Barclays, Santander, and HSBC all making changes.
The impact of the higher mortgage rates will be felt most by borrowers with small deposits, who face higher monthly payments. For example, a £250,000 capital-repayment mortgage over 25 years would see an increase from about £1,392 to £1,480 in monthly payments at a rate of 5.13% compared to 4.52%. This could suppress mortgage volumes and weaken the housing market.
The repricing of mortgages has implications for bank stocks, particularly Lloyds Banking Group, which is the UK's largest mortgage lender. Higher offered mortgage rates can defend lending margins but may also lead to weaker volumes and less benign credit performance.