UK lenders hike mortgage rates after gilt yields rise on inflation data

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Lenders, including the Nationwide Building Society, hiked rates on new mortgages after better-than-expected UK inflation data pushed gilt yields to levels not seen since last year’s “mini” budget crisis year.

The decision comes after official data on Wednesday showed consumer price inflation was 8.7% for April, significantly above the Bank of England’s forecast of 8.4%.

As a result, the yield on two-year gilts jumped 0.24 percentage point to 4.37%, pushing them towards levels seen last year, when then Prime Minister Liz Truss’s unfunded tax cuts wreaked havoc on markets. financial.

Nationwide said the movement in gilt yields, used by lenders to price mortgages, was behind the decision to raise the cost of all fixed-rate products by up 0.45 percentage point from Friday.

“In the current economic environment swap rates have continued to fluctuate and, more recently, to increase, leading to rate hikes across the market,” the construction company said. “This change will ensure that our mortgage rates remain sustainable.”

We are still hungover [of the “mini” Budget and] the markets are still taking paracetamol.

Aaron Strutt, chief technical officer at brokerage Trinity Financial, said the move by Nationwide, the UK’s second largest mortgage lender, would prompt other companies to follow suit.

“It looks like we’re going to have another choppy period with lots of rate changes,” he warned. “This is frustrating because it hasn’t been that long since they started going down.”

Other lenders that announced they would raise rates or withdraw some products included Leeds Building Society, Foundation Home Loans, MPowered and the Scottish Building Society.

Simon Gammon, founder and managing partner of Knight Frank Finance, said markets were still reeling from the blow dealt by the “mini” Budget when lenders pulled thousands of products from the market in September.

Many temporarily halted all new lending in an effort to avoid being swamped by demand for mortgages that would quickly become unaffordable, or raised rates to reduce demand.

Although mortgage rates have declined significantly since their peak immediately after the “mini” budget, they were starting to rebound when the BoE raised interest rates in a bid to fight inflation. The base rate reached 4.5 percent in May, the highest level since 2008.

“We are seeing a delay in what we had hoped would happen, that mortgages would go back to 3-4%,” Gammon said. “We are still hungover [of the “mini” Budget and] the markets are still taking paracetamol.”