THE first mainstream lender has increased mortgage rates as they start reacting to the bond market chaos with brokers urging “borrowers to act quickly”.
Coventry Building Society (BS) has announced increases across its entire range of fixed-rate mortgages as rising bond yields and swap rates place renewed pressure on lenders’ funding costs.
The changes affect fixed deals for new and existing residential and buy-to-let borrowers, raising concerns that other lenders could follow with their own repricing announcements.
They will be implemented from Monday – when they will reveal how much the increases will be.
Fixed mortgage rates are largely influenced by swap rates rather than moving directly alongside the Bank of England base rate.
These wholesale rates can react rapidly to changing inflation expectations and financial market uncertainty.
Renewed tensions in the Middle East have added to that volatility, with the threat of higher energy prices fuelling fears that inflation and interest rates could remain elevated for longer with bond yields rising.
Brokers are urging borrowers whose deals end within the next six months to review their options early rather than wait for rates to improve.
Justin Moy, Managing Director at Chelmsford-based EHF Mortgages, said borrowers need to lock in a deal quickly.
He added: “The warning most mortgage brokers gave at the start of the week has come true, with mortgage lenders having little choice but to raise mortgage rates as borrowing costs rise. It’s become a race to the top; borrowers need to be aware and act quickly to secure deals, especially those looking to remortgage in the coming months, particularly those on 1-2% rates from 2022.
“There is little to suggest improvements are on the horizon. The October Budget needs to be a belter to save 2026, and the government.”
Warning
Stephen Perkins, Managing Director at Norwich-based Yellow Brick Mortgages, said you shouldn’t wait and see if rates go down.
He added: “Coventry’s move is another reminder that fixed mortgage rates can change quickly as wholesale funding costs move. Borrowers approaching the end of a deal should review their options early, but not panic.
“Securing a suitable rate in advance can protect against further increases while still leaving time to reassess if the market improves. One lender moving doesn’t mean every lender will do the same, so comparison remains important.”
Jamie Elvin, Director at London-based Strive Mortgages, said other mainstream lenders could follow Coventry BS’s move.
He added: “Coventry Building Society’s decision to increase fixed mortgage rates is another sign that rising bond yields and swap rates are beginning to feed through to borrowers.
“With geopolitical uncertainty in the Middle East adding further pressure to financial markets, other mainstream lenders could follow. For borrowers approaching a remortgage or planning a purchase, securing a rate early may provide some protection if mortgage pricing continues to move higher.”
Craig Fish, Director at London-based Lodestone Mortgages, said global uncertainty is hitting mortgage holders.
He added: “Coventry BS have just pushed through a full scale increase across their fixed range, and they won’t be the last. This isn’t just a UK story anymore, it’s a global one. Bond yields and swap rates are climbing because the Middle East is stirring again, and events on the other side of the world now land on your mortgage statement within days.
“We’re all living on a knife edge, and if your deal ends within six months, act now, because waiting is how people get cut. Gone are the days of chasing rock bottom rates. The ones who move early are the ones who stay in one piece.”
Race to the top
David Stirling, Independent Financial Adviser at Belfast-based Mint Wealth, said markets are volatile.
He added: “This is the market doing what it always does when geopolitical risk flares up, money markets get nervous, gilt yields move, and swap rates (which is what actually prices a fixed mortgage, not the base rate everyone assumes) shift within days.
“Coventry won’t be the last, as the lenders watch each other like hawks, and once one has repriced, the rest follow within a week purely to avoid being the cheapest rate on the market and getting swamped with applications they can’t fund at that price.
“My advice to anyone looking to remortgage or purchase right now is simple: lock in your offer of a rate now rather than waiting to see if things settle, because ‘wait and see’ in this market usually means watching the rate you wanted disappear.”
Adam Stiles, Managing Director at London-based Helix Financial Partners, said he hopes this is just a “flash in the pan”.
He added: “Not the first and certainly not the last. Whilst global market volatility continues, we’re seeing a lot of pressure on markets, in particular the swap markets, which is what affects fixed rates, to increase.
“As always once this calms down we hope to see rates come back down. While the current market is high, we’re hoping the latest rate increases are a flash in the pan, but only time will tell.”
Harry Goodliffe, Director at Winchester-based HTG Mortgages, said borrowers need to act before mainstream lenders move.
He added: “Coventry has done everyone a favour by going first. Swaps have jumped as bonds climb and the Middle East kicks off again, so the sums behind last week’s deals simply stopped working.
“Coventry moving now tells borrowers what the next fortnight looks like before the bigger names admit it. Expect a run of repricing notices over the coming days, and rate offers already secured will look very good very quickly.”
