Britain’s biggest bank, Santander, has raised mortgage rates despite intense competition among lenders in recent weeks.
Santander will increase interest rates on some fixed rate products by up to 0.20 percentage points from Wednesday.
It bucks broader trends, including recent rate cuts across the country.
Analysts said they still expected the benchmark interest rate to be cut by the end of the year, despite concerns about inflation.
Santander’s move comes after recent official figures showed that inflation, the measure of price increases, unexpectedly rose to 4% in December.
“This increase is to be expected as lender margins are tight at the moment,” said Elliot Currie, director at Switch Mortgage Finance.
“Borrowers need not panic as this is unlikely to become a trend and interest rates are expected to fall further throughout the year.”
Mortgage interest rates are set to hit a record high in 2023 as the Bank of England raises interest rates to curb inflation.
In theory, such a move would cool the economy and ease upward pressure on prices by making borrowing more expensive and discouraging people from taking out loans.
But rising interest rates have caused some landlords to raise rents, making it more expensive to buy a home and worsening what has been described as a cost-of-living crisis.
About 1.6 million existing borrowers face the possibility of more expensive contracts as their relatively cheap fixed-rate contracts expire this year.
However, as prices have calmed down recently, many financial institutions have lowered interest rates, providing some reassurance.
According to financial information service MoneyFact, the average interest rate for two-year fixed contracts has fallen to 5.62% from 5.93% at the beginning of the year.
“Interest rates aren’t as low as they used to be, but they’re a lot better than they used to be,” said Aaron Strutt of Trinity Financial.
“We’ve been saying for some time that interest rates are starting to level out and we may not see much further price reductions for some time, but prices continue to improve.”
Nationwide, the UK’s largest building association, announced on Wednesday that its new products include a 3.85% five-year fixed rate mortgage for new customers relocating with a 40% down payment. This deal has a fee of £1,499.
But the country’s chief economist, Robert Gardiner, said the Red Sea disruption was “part of a broader set of uncertainties” and posed a “significant risk” to British inflation if it started to have a significant impact on trade. warned that it could lead to
Some analysts said Santander’s rate hikes may be precautionary, with expectations that the Bank of England may not cut rates as quickly as some expected.
A Santander spokesperson said the company “reviews interest rates based on a number of factors, including broader market conditions, including swap rates,” a leading indicator of mortgage rates.