NatWest and Nationwide Raise Mortgage Rates: Adding Pressure to Households and Government

The Impact of Mortgage Rate Increases

NatWest and Nationwide, two of the UK’s largest mortgage lenders, recently announced that they are raising their rates. This move adds further strain on household budgets and puts pressure on the government’s efforts to contain the cost-of-living crisis.

NatWest’s decision to raise rates follows a similar move by HSBC, another major home loan provider. This surge in rates indicates a trend in the market and raises concerns about the affordability for potential homebuyers.

The Financial Markets’ Reaction to Inflation Data

The recent increase in borrowing costs is a result of changes in inflation data, which has affected expectations regarding future interest rate hikes by the Bank of England. This has led to a surge in withdrawals or reevaluations of mortgage deals in the market.

The rising mortgage costs have become a politically sensitive issue and pose a growing threat to the government. It exacerbates the cost-of-living crisis, which is already a concern ahead of next year’s elections. Prime Minister Rishi Sunak has stated that reducing inflation and lowering interest rates are his top priorities.

Conservative MPs’ fears of a “mortgage time bomb” have played a role in political developments. The repercussions of Liz Truss’s “mini” budget announcement last year, which spooked the markets and caused interest rates to soar, still linger in the minds of policymakers.

The Potential Economic Impact

Marcus Brookes, chief investment officer at Quilter Investors, warns of the potential economic consequences of these mortgage rate increases. He highlights the fact that fixed rate deals, which were expected to close at a certain rate, now have much higher bid rates. This reduction in available income for households will lead to reduced spending on goods and services and could increase the risk of recession.

NatWest and Nationwide Adjustments

NatWest has announced that it will be pulling some mortgage products and raising rates on others by up to 0.45 percentage points from Friday. The bank cited the need to assess and complete applications efficiently as the reason for these changes.

Nationwide, the UK’s largest construction company, also plans to raise rates on a range of products by up to 0.7 percentage points from Friday. The decision is based on the continued upward trajectory of swap rates, which lenders use to evaluate their fixed rate products.

Market Volatility and Competitiveness

The volatility in swap rate markets, triggered by changing inflation expectations, has posed challenges for mortgage providers in pricing their products competitively. This has led to other lenders, including Santander, Family Building Society, Clydesdale Bank, and Atom Bank, making adjustments to their prices or withdrawing products.

Simon Gammon, founder and managing partner of brokerage Knight Frank Finance, notes that when one large lender makes a move, it often prompts others to follow suit. This creates a more difficult market for consumers to navigate and find the most competitive deals.

NatWest and Nationwide, two of the UK’s largest mortgage lenders, announced on Thursday they were raising rates, piling further pressure on household budgets and the government as it tries to contain the cost-of-living crisis.

NatWest’s decision is the second time this week that it has raised fares, mirroring a similar situation announcement by HSBC, another of the big home loan providers, on Wednesday.

Lucian Cook, head of UK residential search at Savills estate agents, said recent further increases in borrowing costs would stretch potential homebuyers’ finances. “It will clearly challenge affordability,” he said. “It will be more difficult for borrowers to pass the stress test.”

Moves to withdraw or reevaluate mortgage deals have surged in recent weeks as financial markets react stubbornly high inflation datawhich changed expectations about how much the Bank of England will have to raise interest rates.

The issue of rising mortgage costs is becoming increasingly political and poses a growing threat to Rishi Sunak’s government, exacerbating the cost-of-living crisis ahead of next year’s elections. The prime minister this week insisted that his “number one priority” was to reduce inflation and lower interest rates.

Fears among Conservative MPs of a “mortgage time bomb” contributed to Liz Truss’s ousting as prime minister last year after her “mini” budget spooked markets and sent interest rates soaring.

Marcus Brookes, chief investment officer at Quilter Investors, said fixed rate deals expected to close for $1.4m this year, with bid rates much higher than when they were entered into.

“This will ultimately suck a huge amount of money out of the economy with people having far less to spend each month on goods and services, making the threat of recession greater and greater,” he warned.

NatWest said it was pulling a number of mortgage products, raising the rate on others by up to 0.45 percentage point from Friday. It had earlier revalued some of its mortgages on Tuesday.

The bank said it has seen “normal application volumes double” making the move necessary “to ensure applications can be assessed, completed and drafted in a timely manner”.

Nationwide, the UK’s largest construction company, said it would also raise rates on a range of products by up to 0.7 percentage point from Friday, citing the “continued upward trajectory” of swap rates, which lenders credit institutions use to evaluate their fixed rate products.

Financial markets have reacted to stubbornly high inflation data in recent weeks as expectations have changed about how much the Bank of England will need to raise interest rates. This has led to volatility in the swap rate markets, making it difficult to price home loans competitively.

Other mortgage providers to announce changes to their prices or withdraw products this week include Santander, Family Building Society, Clydesdale Bank and Atom Bank.

“They tend to be like buses: when you have a lender that moves, it sorts out who’s the most competitive,” said Simon Gammon, founder and managing partner of brokerage Knight Frank Finance. “If one large lender moves, it’s quite normal to see three or four move in short succession, which makes the market much more difficult to navigate.”