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2 banks to raise mortgage rates in anticipation of inflation – more could follow


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HSBC and NatWest are raising mortgage rates for large depositors amid fears of rising inflation. This comes after the rates of both the banks were brought down to rock-bottom levels earlier this year.

So what will this development mean for the larger mortgage market? Let’s take a look.

Mortgage Rates and Inflation: What’s Happening?

On Thursday, HSBC raised the mortgage interest rate for customers with 25%, 30% and 40% deposits to 0.1%. The changes are applicable on fixed mortgage terms above two years.

Following this change, the bank does not officially offer three- and five-year permanent contracts with a sub-1% rate.

According to This is money, Mortgage brokers have already said that NatWest will soon follow HSBC’s lead and it is expected that its mortgage rate will increase by the same amount.

Until recently, many analysts have suggested that the mortgage rate will be even lower, although recent reports of rising inflation seemingly have put a damper on these forecasts. This is because analysts have predicted that the Bank of England will have its all-time low base rate of 0.1%.

It now seems increasingly unlikely that inflation could exceed 4% by the end of the year. As a result, the Bank of England is now under pressure to rapidly change its base rate to cool inflation.

How much is the tide of mortgage going?

While a 0.1% increase for a handful of mortgage products isn’t too hard at first glance, the big story is important to recognize. HSBC and NatWest may have signaled the end of a very cheap mortgage agreement. In other words, it is very possible that other donors will follow their lead.

To put it in context, HSBC’s recent mortgage increase comes just two months after it offered its lowest two-year fixed mortgage rate of 0.89%. While some would argue that a cheaper 0.86% fixed deal from Barclays is still available, it is fair to say that this rate may not last long.

What is inflation? And why is it bad?

Inflation refers to the rising cost of goods and services. Rising inflation rates are generally considered bad for the economy. This is because it effectively reduces the purchasing power of people of certain incomes.

High inflation is bad for savers for the same reason. In fact, savers are going through a really tough journey at the moment, with that interest rate, even in the top savings accounts on the market, is nowhere near the current rate of inflation.

High inflation raises general uncertainty surrounding the broader business environment, which may make companies reluctant to invest. This can affect work and consumer spending.

How does inflation affect the housing market?

When inflation rises, the value of any household mortgage debt effectively decreases. To address this, lenders increase their mortgage rates. However, they can do this only for new customers, or for existing customers at their Standard Variable Rate (SVR).

With this in mind, mortgage holders are safe from any upheaval for the time being. For this reason, those who have long-term fixed mortgages may actually welcome rising inflation. This is because, in the real sense, rising inflation effectively eats away at the value of their mortgage debt.

Rising inflation can push up mortgage rates, which is actually why home prices are falling. This is because more expensive mortgages reduce the amount of money that people can take to buy a home. This is especially true for those looking for a large loan-to-value ratio.

As a result, higher mortgage rates may be welcomed by first-time buyers, such as falling home prices. Higher rates can also be welcomed by those who want to move to more expensive properties. Because in a declining real estate market, any reduction in the value of their current home will probably be less than the savings made on a new property.

What is the current rate of inflation?

According to the Consumer Price Index (CPI), which is the government’s preferred method of measuring inflation, the current inflation rate is 3.2%. This is well above the government’s 2% annual target.

The National Statistics Office will release new CPI data on Wednesday, October 20, which could confirm the risk of inflation accelerating.

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