Mortgage Rates Increasing Despite Bank of England Rate Cut

Since the Bank of England interest rate cut of 0.25% pa on 7 November, many lenders have increased mortgage interest rates.

5 of the larger lenders have increased rates across the board by around 0.3% for some: HSBC, Nationwide, NatWest, Santander, TSB and Virgin.

There are also no sub 4% rates currently available.

What have mortgage rates gone up when Bank of England rates are down?

This is do with cost of government borrowing.  In its Budget on 30 October, the Labour Party said it would be amended the rules to how government debt and therefore any further borrowing restrictions would change.  For example, student loans are to be categorised as a government asset rather than a liability in the country’s ‘balance sheet’  By appearing to be less in debt (or at risk of defaults), the government can borrow more, and Rachel Reeves (Chancellor) has suggested the government can now borrow an additional £50bn to spend on government projects.

By borrowing more, investors deem lending to the government higher risk i.e., government interest rates (the rate that they pay to borrow) is higher.

When lenders want to borrow money themselves from each other to fund e.g., tomorrow’s mortgages completing, they are then forced to pay higher interest rates over and above what the government is paying because if not, the lending ‘source’ may as well lend the money to the government.

With concerns for stubborn and increasing inflation across UK, Europe, and North America, ‘all bets are off’ for further central bank interest rate cuts.

Comment

Interest rates being held or increasing will reduce inflation, but we suggest we are also on the brink of recession with UK GDP down. There is a growing global fear of no further US rate cuts that are giving markets the ‘jitters’.  We suggest central bank rates will not be cut again until the 2^nd quarter in 2025.