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A major high street lender has raised mortgage rates amid ongoing bond market chaos.
Virgin Money increased the price of two and five-year deals by up to 0.2 percentage points on Wednesday as a government bond sell-off threatened to keep interest rates higher for longer.
The bank’s 65pc and 75pc loan-to-value (LTV) purchase rates rose by 0.2pc, while its 85pc LTV five-year fixes were raised by 0.1pc.
Inflationary pressures, in part due to Rachel Reeves’s tax-raising Budget, have spooked the bond market in the past week and raised the cost of government borrowing.
Swap rates – the main pricing mechanism behind mortgage rates – have risen sharply in response to the confidence crisis.
It spells more misery for homeowners as lenders scramble to reprice deals, experts said.
Frances Haque, Santander’s chief economist, said this week that lenders would “nudge up pricing to reflect the higher swaps” in the short term.
She added that all eyes would be on this week’s inflation and GDP data to give an indication of the Bank of England’s interest rates decision next month. The Monetary Policy Committee held rates at 4.75pc after its last meeting in December.
Santander now predicts four base rate cuts over the course of this year, with the base rate standing at 3.75pc at year end, a slower fall than previously forecast.
Nick Mendes, of mortgage brokers John Charcoal, said he expected more lenders to raise rates on lower LTV products.
He added: “Swap rates have started to increase. Lenders have tried not to respond too quickly with knee-jerk re-pricing. We haven’t seen changes across the board.
“But we are expecting rates to go up. We’ll see some rates edging up quickly, with sub-4pc deals not looking likely for the first half of the year.”
It comes as the gap between two and five-year mortgage rates dropped to its lowest margin since January 2023.
The average two-year fixed-rate mortgage stood at 5.48pc at the start of January, 0.23 percentage points higher than the five-year equivalent at 5.25pc, according to financial information website Moneyfacts.
The narrowing suggests markets expect interest rates to stay higher for longer.
Analysis by The Telegraph this week showed that the Chancellor’s inflationary Budget is set to add over £1,000 to a middle-class family’s mortgage due to the upward pressure it has placed on mortgage rates.
Ms Reeves will seek to reassure turbulent markets as she faces a grilling in the Commons from MPs later today.