Major mortgage lenders have increased their rates, affecting both homeowners and buy-to-let landlords. This change has removed some of the most affordable two-year fixed rates from the market.
Last week, TSB announced rate increases on their two-year, three-year, and five-year fixed-rate mortgage deals by up to 35 basis points. This change will affect a wide range of borrowers including first-time buyers, home movers, and those looking to remortgage their current properties. Following suit, from April 26, Halifax also raised its mortgage rates by 20 basis points for the same groups.
Halifax had been offering a competitive two-year fixed rate of 4.6% with a £1,099 fee for homebuyers who could bring at least a 40% deposit. Another option was available at a 4.65% rate for those with a 25% deposit. These increments follow similar moves by other major lenders such as HSBC, Barclays, and NatWest earlier in the week.
Why Are Rates Increasing?
The primary driver behind these increases is the rise in swap rates, which are indicative of what lenders predict for future interest rates and fundamentally influence their pricing strategies. Nicholas Mendes, a mortgage technical manager at John Charcol, explains that swap rates have been climbing, with two-year swaps moving from 4.36% to 4.56% since March 25, and five-year swaps from 3.81% to 4.06%. These changes typically lead to adjustments in mortgage rates within a fortnight.
Mendes further notes that the recent rate hikes reflect higher gilt yields and market adjustments in expectations for central bank activities, including those of the Federal Reserve. Lenders have been quick to realign their pricing to maintain competitiveness and manage service levels amidst these market fluctuations.
Impact on Buy-to-Let Landlords
The buy-to-let sector has not been spared, with TSB and BM Solutions (a division of Lloyds Banking Group) announcing rate hikes. TSB has raised its two-year and five-year buy-to-let fixed rate deals by up to 45 basis points and has withdrawn its two-year tracker deals, which previously offered rates as low as 5.74% (base rate plus 0.49%) with a £994 fee at a 60% loan-to-value ratio.
Trackers, which adjust according to the Bank of England’s base rate, typically do not include early repayment charges, making them attractive for those who value flexibility. BM Solutions also increased its tracker rates by 20 basis points and raised its fixed rates by the same margin, threatening the availability of the market’s lowest five-year fix, previously at 4.19% for landlords with a 25% deposit.
A Silver Lining for Landlords
Despite the tougher conditions, not all news is bleak for landlords. Chris Sykes, technical director at broker Private Finance, points out that rents have been rising and housing prices in some areas have become more reasonable, potentially increasing rental yields. The market dynamics have shifted from a seller’s market in 2022 to a buyer’s favored scene in 2023, and now to a balanced market in 2024.
Furthermore, some lenders have relaxed their buy-to-let stress rates, which helps in requiring only a minimum of 25% deposit in many cases and may increase the mortgage amount one can secure. This easing could provide landlords with better liquidity, enabling more investments in property upgrades or additional properties.