Lenders pull deals as funding costs rise ahead of Trump spending spree.
Mortgage rates are on the up, which is bad news for borrowers who may have overstretched.
Homeowners face a sharp rise in their mortgages after a jump in the cost of borrowing on international money markets.
Lenders are withdrawing their cheapest deals because funding costs have soared in recent months. Norwich & Peterborough building society will pull its 1.19% two-year fixed-rate mortgage on Tuesday, days after Leeds building society withdrew an identical deal.
The two mutuals have been among the cheapest on the market, but Leeds replaced its ultra-low two-year fix last Friday with a rate 0.16 percentage points higher.
The changes are a blow for homebuyers, who have enjoyed a rates windfall since the 2008 financial crisis. Although future increases are expected to be gradual, this is the clearest sign yet that the era of record-low borrowing costs may be coming to an end.
Last month, HSBC withdrew its cheapest-ever mortgage — 0.99% fixed over two years — and ramped up rates on other loans. Britain’s largest bank explained that its own funding costs had gone up so it could no longer afford the 0.99% deal, which was the cheapest on the market and the lowest ever recorded.
High street lenders have seen borrowing costs rise despite the Bank of England keeping its rate at an all-time low of 0.25% since August. Those costs are sensitive to changes in longer-term interest rates, which are set on global financial markets.
The rise in US rates last month. coupled with expectations that further increases will follow as Donald Trump’s stimulus plans boost growth and inflation, has pushed up longer-term borrowing rates around the world.
In the UK, 10-year swap rates — a gauge of investors’ expectations of interest rates over the next decade — have doubled since August from 0.671% to 1.345%. Five-year swap rates have also doubled over the past five months.
Rates remain very low by historical standards, but there is growing concern that even a modest rise in borrowing costs could result in a headache for households that have snapped up cheap credit.
Figures from the Bank last week showed that mortgage approvals reached their highest level in eight months during November.
London & Country, one of the largest mortgage brokers, said the average cost of a home loan had climbed by 0.2 percentage points in recent months. David Hollingworth, of the broker, said he expected more banks to withdraw their cheapest deals from the market in the coming months.