With all the talk about the unexpectedly low remortgage and mortgage rates available from lenders due to the competitive lending environment that was developed around the expectation of the first MPC rate cut since 2020, the discussion is now on rate increases. Yes, increases. The expectation of the first cut spurred lenders to reduce their rates to attractive levels that could not be ignored by borrowers. After the Bank of England’s Monetary Policy Committee (MPC) voted to cut the standard base interest rate in August, rates were slashed further. Some fell below 4% despite the base rate reaching just 5.0% after the 0.25% reduction. 

There is another rate cut expected by the end of the year as the latest report on inflation revealed a steep decline from 2.2% to below the target level of 2.0% to 1.7%. However, the upcoming budget announcement at the end of October has pushed lenders to a more cautious level and their lowest rates are being pulled. 

The step back for some lenders from their rapidly reduced rates to below the MPC’s base rate could also be triggered by the large volume of borrowers taking advantage of their offers. The ability to loan at lower rates has their limits with most lenders and borrowers have been taking advantage of the offers in both remortgaging and mortgaging.

Another cause could be the likelihood of the second rate cut by the MPC. By pulling the lowest interest rate deals, lenders can reduce the products they have on the market and offer fresh new deals after action is taken by the MPC in November or December. There is always the possibility of the MPC holding the rate steady and if they do, then the lenders will have adjusted their offers without showing a lack of confidence in the economic outlook.

Most likely the increase in rates by lenders is due to the upcoming budget announcement on 30 October. There could be taxes announced and government spending changes. The expectation of this has led swap rates, the interest rates at which lenders lend and borrow from one another, to rise and that increase in cost is normally transferred to the borrowers. The result is normally a quick pull of the lowest interest rate deals and a slight increase in those newly released for borrowers.

The latest lenders to increase their rates are HSBC and Virgin Money, which followed Santander, NatWest, Halifax, Barclays, and TSB, all which adjusted their offers earlier. 

Nick Mendes with John Charcol, remarked, “HSBC’s latest rate changes reflect a strategic and varied approach, with a mix of increases and decreases. 

“The reductions in its two-year fixed standard products at 80% and 85% LTV suggest a focus on making mid-tier borrowing more attractive, particularly for homeowners looking to remortgage. However, the increases in lower LTV products, especially at 60%, point to a more cautious response to recent market volatility and rising funding costs.”

Mr. Mendes, added, “While these repricing changes signal short term market volatility, they don’t necessarily indicate a long-term trend. In the broader economic context, falling inflation has strengthened the Bank of England’s position to consider rate cuts in November and possibly December. However, the market remains sensitive to changes in the economic outlook, with attention focused on next week’s Budget for further direction.”

Borrowers are encouraged to take action sooner rather than later if they could benefit by remortgaging or mortgaging at rates currently still available. There is a possibility that there could be further rate changes after the Budget that leave the lending environment less competitive and certainly less borrower friendly than only weeks prior.

Homeowners looking to discover what remortgage offers are available to them could simply and quickly shop for a deal online. In a matter of minutes, they could have numerous remortgage quotes from a variety of lenders and possibly exclusive lender deals by visiting the website of a remortgage broker. They could also go from website to website of remortgage lenders to gather quotes. The information can then be reviewed and compared to find the best deal among the many offers that fit the unique needs of the homeowner.

The reaction to the Budget and then the decision of the next MPC meeting will determine if rates will drop back to the level they most recently resided at, but it should be noted the very best deals, those with the lowest interest rates were those with low loan to value ratios or LTVs. They also were associated with the highest fees. 

Rather than mourning the loss of the lowest interest rates available with higher fees, borrowers should pay attention to the slightly higher rates still available that could have much lower fees and are more readily available to a broader group of borrowers. It is still a good time to borrow, rates are still attractive, and lenders are keen on getting new customers. Borrowers simply need to shop around and take advantage of what is available.