Barclays Hikes Mortgage Rates Amid Inflation Fears, Thousands of Deals Withdrawn

Mortgage rates are on the rise, with Barclays increasing some of its fixed rates for the second time in a week. This move by Barclays, along with other lenders like Nationwide, Virgin Money, and TSB, comes as more than 1,000 mortgage deals with rates below 5% have been pulled from the market in the last month. The number of two-year fixed mortgages below 5% has plummeted from 630 to just five, and five-year fixed deals have fallen from 638 to seven, according to figures from Moneyfacts.

At the beginning of the year, most borrowers could secure rates below 4%, with two-year fixes as low as 3.5%. Now, the average two-year fixed mortgage stands at 5.93%, and a five-year fix is at 5.95%.

These repricing efforts are driven by rising inflation, partly fueled by the conflict in the Middle East and increased energy prices. These factors are leading to speculation that the Bank of England may increase its base rate to combat inflation. Although the Bank of England held its base rate at 3.75% in September, most economists anticipate a rate hike later this year.

The cost of government borrowing, reflected in gilt yields, has also climbed sharply. Yields on 30-year gilts reached their highest level since January 1998, and five-year gilt yields are at their highest since 2008. These rising yields directly influence mortgage rates, as they increase lenders' funding costs. This can lead to higher repayments for homeowners and a cooling housing market as potential buyers may fail affordability tests.

Experts are urging borrowers who need to remortgage in the coming months to act quickly and secure a fixed rate to lock in current pricing. Fixed mortgage rates can typically be secured three to six months in advance of an existing deal ending, and borrowers may be able to switch to a more favorable deal before completion if rates fall.