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Barclays has pulled back its cheapest fixed mortgage rate as rising UK government borrowing costs ahead of the Budget limit lenders’ ability to keep their most affordable home loans on the market.
The high street bank said it would raise the cost of its 5-year fixed-rate home loan with a 40 per cent deposit from 3.71 per cent to 3.76 per cent, although Barclays said it would reduce rates on many other mortgage products.
Santander on Thursday also it would withdraw a number of its rates, including some of the cheapest deals, and brokers expect that other big lenders are also likely to have to adjust their cheapest rates. Several smaller providers have already made changes.
“It seems unlikely that some of the best buy deals are going to be around much longer,” said Aaron Strutt, director at mortgage broker Trinity Financial.
Most mortgage rates are still coming down, a trend brokers expect to continue this year with only the cheapest offers under threat. Nicholas Mendes, mortgage technical manager at broker John Charcol, said “any uptick . . . will likely be temporary”.
Mortgage pricing tracks interest rate swaps, which reflect the average interest rate expected over a given term.
Five-year swap rates have moved higher, reaching 3.79 per cent, up from 3.49 per cent a month ago, as stronger economic data for the UK prompted investors to trim their expectations for interest rate cuts by the Bank of England.
At the same time, concerns about UK chancellor Rachel Reeves’s borrowing plans ahead of this month’s Budget have added to the upward pressure on government bond yields, which are closely linked to swap rates.
Hina Bhudia, partner at Knight Frank Finance, said that it “does now look like some lenders have cut a little too aggressively in recent weeks”.
“Margins are so thin that a shift in the outlook for global interest rates can quickly mean that the lenders are doing business at rates that don’t meet their cost of funding,” she added.
Major lenders started offering five-year fixed-rate deals lower than 4 per cent over the summer, after a major rise in borrowing costs since 2022 that has badly hit the property market.
UK house prices and transactions have been rising as the fall in mortgage rates has given buyers more confidence. But anxiety over the upcoming Budget has served as a brake on the recovery, with some purchasers delaying their moves until after the flagship October 30 fiscal event, Strutt said.