Mortgage rates rising as Santander and HSBC up costs for borrowers: Should you fix now?

Borrowers are being warned that mortgage rates are set to rise over the coming weeks as major lenders including HSBC and Santander prepare to raise costs.

Smaller lender Family Building Society has temporarily withdrawn all fixed rate mortgages from the market to reprice deals.

It comes as financial markets that affect mortgage pricing go through significant shifts.

Experts have now said borrowers shortly coming to the end of fixed rate deals should expect costs to move higher.

We look at what is happening with rates and what you can do if you're worried about increases.

Why are mortgage rates rising?

Lenders are reacting to market movements and upping their rates to pass on higher costs of funding mortgages.

Santander has confirmed it is raising almost all fixed rates tomorrow Tuesday 8 September and, HSBC is also today raising rates.

Virgin Money raised rates at the end of last week.

The price of mortgages is affected by financial market Swap rates, as well as bond yields, and these have been rising over the past couple of weeks.

Nicolas Mendes from broker John Charcol said: "Mortgage rates are not set by the Bank of England base rate day to day, they are set by swap rates, broadly the price lenders pay in the financial markets to borrow money for a fixed period.

"When a lender offers a five-year fix, it is borrowing at the five-year swap rate to fund it, so when that rate moves, the mortgage rate follows within days."

Swap rates have partly been rising because fighting in the Middle East has intensified which has reignited concerns around inflation within the global economy.

When inflation is higher, interest rates tend to move up.

Rachel Springall, from data site moneyfactscompare.co.uk, said: “The pricing margins among major lenders are under pressure due to renewed volatility in the swap rate market, so it is somewhat inevitable for them to adjust rates.

“Mortgage rates are rising due to the escalating military conflict between the US and Iran, reigniting inflationary fears. The UK 10-year gilt yield has also risen further above 5% to an 18-year high recently due to a global bond sell-off, adding further pressure to the wholesale funding costs that underpin fixed mortgage pricing."

Which lenders are raising mortgage rates?

So far, HSBC and Santander has confirmed costs will rise this week. Virgin Money last week raised rates and one lender Family Building Society has removed all fixed-rate mortgages to reprice.

More lenders - big and small - are expected to increase rates over the coming days and week as a result of market movements.

The average two-year fixed rate is now 5.63%, the highest since 10 August, while the average five-year rate sits at 5.69, the highest since 11 May, according to Moneyfacts.

Nicholas Mendes from John Charcol said: "Current market pricing points to rates staying higher for longer rather than falling back soon, and the direction of travel from here is more likely up than down over the next few months, so borrowers hoping fixed rates ease off in that time should plan on that not happening."

Rachel Springall added: "Borrowers expecting mortgages rates to drop in the coming weeks have had their hopes dashed. The prolonged conflict increases the chances for the Monetary Policy Committee to vote for an increase to the Bank of England Base Rate (BBR)."

Should you fix your mortgage now?

As mortgage rates are expected to rise further in the short-term, it could be a good idea to lock in a rate now if you are coming to the end of a deal.

Those looking to remortgage can do so around six months in advance.

If you are fixed is ending, a mortgage broker can help you understand what the latest movements mean for your situation.

Even if you get a mortgage offer now at a favourable rate, you do not necessarily need to take it. Offers can last around six months, so you can always get a fresh offer if rates come down instead.

Nicholas Mendes said: "For anyone within six months of their current deal ending, the sensible course is to secure a new rate now rather than delay in the hope conditions settle.

"Most lenders allow an offer to be locked in three to six months ahead, and if a cheaper deal appears before completion, it can usually be switched onto at no cost, so there is little to lose from acting early and a real cost to leaving it too late."

Will mortgage rates continue to rise?

Financial market movements suggest that rates could keep rising, at least in the short term.

Over the longer term, the outlook depends on lots of different factors including the war in the Middle East, oil prices and inflation.

All eyes are also on the economic policies of new Prime Minister Andy Burnham.

The Budget on 28 October will reveal more and markets can move significantly in response to new policies or changes by the government.

The Bank of England's Monetary Policy Committee (MPC) sets the Bank of England base rate and when these central interest rates rise - or are expected to rise - mortgage pricing can follow suit.

The details from the next MPC meeting will be announced next week on 17 September and markets will be looking closely for signs that interest rates could move higher sooner or faster than expected.