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UK lenders raise mortgage rates ahead of further projected BoE hikes.

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Banks in the UK are starting to speed up the rate of increase in the price of fixed rate mortgage loans as they prepare for higher rates from the Bank of England.

At least nine banks and building associations have raised rates in recent weeks, and the BoE base rate is expected to reach nearly 3% this year. The Bank of America raised its key interest rate by 0.25 percentage points on Thursday to 1.25% for the fifth straight year and warned inflation could exceed 11% by the end of the year.

A number of banks have shifted their floating rate mortgages to borrowers this week. However, banks price fixed-rate mortgages based on market expectations of the trajectory of interest rates.

On Thursday, HSBC raised rates on its major fixed rate mortgages by 0.45% and 0.5 percentage points, a decision it made ahead of the BoE announcement.

HSBC’s rise was in response to a surge in its two-year swap ratio, and the BoE’s 0.25 percentage point increase was the best of all large lenders.

On the same day, NatWest raised its price by up to 0.27 percentage points.

Nationwide introduced a higher price on a flat rate up to 0.4 percentage points. Halifax also raised prices by up to 0.1 percentage point.

Earlier this month, NatWest CEO Alison Rose noted a “trend” for five-year fixed mortgage loans, but said mortgage demand remains strong despite rising costs.

Strong demand from fears of further rate hikes is making UK lenders difficult to process new mortgage applications, along with many withdrawals or price-adjusted products.

Simon Gammon, Managing Partner at Knight Frank Finance, said: They’re rebalancing prices because they’re all full of mortgage applications, interest rates are rising, and nobody wants the cheapest from the best for fear of being overwhelmed. This means that in many cases we are seeing mortgage rates rising faster than interest rates.”

The average two-year fixed rate rose to 3.25% this month from 2.02% in June 2020, according to finance website Moneyfacts.

Rachel Springall, Finance Specialist at Moneyfacts, said: Since the fixed rate has been lowered, it may be a wise choice to lock in longer.

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