Nationwide hikes mortgage rates
Mortgage borrowers have been dealt a blow after Nationwide announced interest rate hikes across its fixed-rate mortgage range.
The change, which comes into effect on Friday 12 June, will see its popular five-year fixed deal increase in price by up to 0.86%. Two-year fixes, meanwhile, will increase by up to 0.61% and three-year products by up to 0.26%.
For someone looking to borrow £150,000 on an interest-only basis the rate change will see them pay an addition £6,450 over five years, according to brokerage John Charcol.
Ray Boulger, senior technical manager at John Charcol, warns the move could mean Nationwide is looking to reduce the overall amount it lends. As one of the largest lenders in the UK, and with mortgage approvals still at a 30-year low, this does not bode well for homeowners and first-time buyers.
Boulger is also perplexed by the nature of the rate changes. He explains that over the building society’s two-year product range, the biggest rate increases are for people with smaller deposits – however, across the five-year range, people looking to borrow up to 60% of their property’s value are being hit with largest increase in rate, whereas those who need to borrow 85% face the smallest rate rise.
“There is no obvious pattern to which rates are going up most,” Boulger adds.
The rate rise comes just days after Paul Tucker, the deputy governor of the Bank of England, warned delegates at an insurance conference that is it still unclear whether banks and other lenders will be able to increase the amount they lend. He added that maintaining a restricted lending strategy was “counterproductive” for businesses.
Jennifer Williams, a spokeswoman for Nationwide, says that the changes to pricing reflects “moves made by competitors” as well as the cost of funding and the type of business it is currently looking at attracting. “We strike a balance between all of these and aim to offer a sustainable range which enables us to meet demand and maintain a prudent mix in the type of business we attract,” she adds.
With the Bank of England base rate now unlikely to stay at its current level of 0.5% before rising, possibly quite sharply, mortgage brokers are recommending buyers and people remortgaging opt for fixed-rate loans rather than variable.
This is reflected in new figures from the Council of Mortgage Lenders (CML), which show an increase in the take up of fixed-rate mortgages. It reports that 69% of borrowers went for fixes during April.
Bob Pannell, head of research at the CML, says: “With the base rate cycle now at its floor, an increasing proportion of borrowers are taking out fixed rates, including for longer term periods of five to 10 years.
“With expectations for rates to remain low in the near future, shorter-term fixed-rate deals are less appealing than attractively priced variable rate deals.”
Changing mortgages without moving home. Property owners chiefly remortgage to get a better deal but some do so to release equity in their homes or to finance home improvements, the costs of which are added to the new mortgage. Even though you’re not moving house, you still need to engage solicitors, conveyancing and the new lender will require the property to be surveyed and valued.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.