Fears of an imminent rise in interest rates have led lenders to close the door on mega-cheap loans.

  • This summer, mortgage rates fell to a record low as providers fought for their customers
  • Last week, however, the Bank of England governor warned that interest rates could rise 
  • Variable rate homeowners will be hit hard by any interest rate rise  

Fears of an imminent increase in interest rates are driving away ultra-cheap mortgages.

NatWest and Nationwide are two lenders that have offered fixed-rate five-year products below 1%.

In a matter of two weeks, the number of loans in this bracket fell by almost a third. As banks and building societies worked to attract customers, mortgage rates fell to a record-breaking low this summer.

Analysts think the price war may have ended. Andrew Bailey, Bank of England governor, cautioned last weekend about the possibility that interest rates could rise to stem the soaring prices.

Nationwide and NatWest are among lenders to have pulled five-year fixed products priced below 1 per cent

NatWest and Nationwide are two lenders that have offered fixed five-year products below 1 percent. 

Yesterday the Bank’s chief economist, Huw Pill, said that with inflation likely to hit 5 per cent early next year, the decision on whether to hike rates in November was very much ‘live’.

The City is betting that the rate will rise as soon as next month. The Bank of England base interest rate was reduced to 0.1% at March’s start of the pandemic.

Variable rate homeowners who are already paying higher food and energy bills will be hit hard by any increase.

A rise of 0.5 percentage points would add around £50 a month to the cost of a £200,000, 25-year mortgage. A 1 per cent increase would add around £90.

‘It seems inevitable that lenders will start to increase fixed rates,’ said Andrew Montlake of mortgage broker Coreco.

Any increase will hit homeowners with variable rate deals and already struggling with higher energy and food bills

Variable rate homeowners will feel the impact of any increase, especially if they are already paying higher energy and food costs.

‘The question is whether the Bank of England holds its nerve or feels it has to act sooner rather than later.’

Many lenders are increasing fixed rates for new customers. David Hollingworth of broker L&C said: ‘Borrowers have enjoyed a period where it felt like rates would drop ever lower. That movement has now taken a rapid turn and we’re already seeing fixed rates rising. The market remains competitive but fixed rates will shift as market expectation of a rate rise grows.’

Nationwide increased its rates for borrowers by requiring a 40% deposit on Wednesday.

The cost of a two year remortgage went up from 0.89 to 1.04 percent. Fixed-term borrowers will pay 1.24 percent instead of 0.99%. NatWest’s five-year offer is 1.02 per cent, up from 0.97 per cent. Santander and Halifax are the only lenders that offer five-year fixed rates below 1%.

Rachel Springall of Moneyfacts said: ‘There is still a plentiful amount of competitively priced mortgage deals out there. Lenders still very much want new business at the moment.’

Nearly half of all first-time buyers this year will have been supported by the bank of dad and mum.

Parents are expected to contribute £9.8billion in gifts and loans – an average of just over £58,000 per purchase, according to property group Savills.

It said that family members have helped almost 1.4million first-time purchasers over the past ten decades.