NatWest has become the latest big bank to increase their mortgage rates, sparking fears that mortgage price rises could see borrowers paying hundreds of pounds extra every year.

The bank, a familiar name on every high street, announced that from Thursday, most of its fixed-rate mortgages for two and five year terms will increase by 0.3%. Their tracker mortgages are also affected, with rates going up.

Here’s what’s changing:

• Five-year fixed-rate mortgage with a 40% deposit: Increasing from 3.79% to 4.09%. This is a blow for many, as it pushes this popular deal back over the psychologically important 4% mark.
• Five-year fixed-rate mortgage with a 25% deposit: Jumping from 3.89% to 4.19%.
• Two-year tracker mortgage with a 40% deposit: Climbing from 5.61% to a hefty 5.91%.

What’s behind these increases?

Experts say the blame lies with something called “gilts” – government bonds used to price fixed-rate deals. The interest rate (or yield) on these gilts has shot up recently. The key ten-year gilt now has a yield of 4.242% – that’s a huge half a percentage point higher than just a few weeks ago in mid-September!

Why are these gilts so jittery? It’s all down to the upcoming Budget and worries that the Government might borrow a lot of money. This makes investors nervous, pushing up the cost of borrowing.

Is there any good news?

Well, there is a glimmer of hope. The Bank of England is still expected to cut its base interest rate from 5% to 4.75% in November. If this happens, it could put the brakes on runaway mortgage rates and offer some relief to borrowers.

What should you do?

If you’re worried about rising mortgage rates, speak to an independent financial advisor to see what your options are. You might be able to lock in a good deal now before rates climb even higher.