Lenders raise mortgage rates amid Budget market jitters

Borrowers urged to secure deals quickly as sub-4pc rates come under threat

Lenders are raising mortgages after the cost of government borrowing jumped in response to Labour’s Budget tax rises.
Skipton Building Society and Coventry Building Society have both announced rate increases from next week as jittery lenders readjusted their prices in the wake of Wednesday’s announcement. 
Virgin Money was the first to increase rates by up to 0.15pc, while Santander said it would cut residential and buy-to-let fixed rates by up to 0.36pc. Halifax has raised some rates and cut others.
Rachel Reeves’s borrowing and spending plans are expected to add to inflation, and experts have warned that the Budget means families can expect “more mortgage pain for longer”.
Yields on UK gilts – which have a knock-on effect on mortgage rates – rose to a five-month high following the Chancellor’s announcement. 
The Treasury watchdog has forecast that interest rates will stay higher for longer. The Office for Budget Responsibility (OBR) said it now expected rates to fall to 3.5pc by 2029, around 0.5 percentage points higher than its March forecast and 0.25 percentage points higher than before the Budget.
The OBR also forecast that the average mortgage rate would jump from 3.7pc in 2024 to 4.5pc in 2027. The average rate on a five-year fix on Thursday was 5.09pc, while a two-year fix was 5.39pc.
The Bank of England is meeting next week to vote on interest rates, currently at 5pc. The likelihood of a rate cut implied by the market has fallen from 95pc before the Budget to 77pc on Friday.
Adrian Anderson, a mortgage broker at Anderson Harris, said: “The general direction of travel over the next couple of weeks for fixed-rate mortgages will be upwards. When banks reprice next week we’ll see increases for virtually all the lenders. 
“It’s confusing for the consumer. The basic fact is that since banks have reacted to the Budget, bond markets and gilts haven’t reacted well. Swap rates [the main pricing mechanism behind mortgage rates] have increased quite significantly.
“Base rate will still be reducing, but probably not quite as quickly. There will be a bit more mortgage pain for a bit longer.”
David Hollingworth, of L&C Mortgages, said: “It’s confusing times for mortgage borrowers when the expectation is for a base rate cut next week but fixed rates look set to rise. 
“If market rates remain at current levels, it looks inevitable that more lenders will have to rethink their rates. 
“This isn’t the radical spike in rates that have blighted mortgage rates in the past couple of years. But if funding costs don’t ease, the sub-4pc five-year fixed rates that we’ve become used to in recent months could be under threat. 
“Borrowers currently considering a fixed rate option should move quickly to secure a deal as we’re seeing some rates withdraw with very little notice.”