An expert has labelled the change as ‘extreme’
Virgin Money has made an announcement experts say will come as a “shock to borrowers” – as Santander also took action. Virgin Money has increased mortgage rates by up to 0.75%.
Santander is putting up its rates by up to 0.53%. It comes as the property market takes a hit in a “real shock to borrowers” amid the Iran war and many lenders push up rates on products.
From tomorrow, Virgin Money purchase mortgages will be increased by up to 0.70%. Meanwhile, remortgages will be increasing by up to 0.65%, while buy-to-let mortgages will be increasing by up to 0.75%.
The Iranian war has pushed up fuel prices, which is in turn pushing up inflation in the UK. This is then affecting future interest rate expectations as rates are used as a tool to control inflation, and lenders are adjusting their rates in the light of this.
The move from Virgin Money comes after it increased across the board by up to 0.21% two weeks ago, just a week after increasing rates by up to 0.25%. The changes reportedly mean the lender has increased rates by over 1% in just one month.
Santander also announced that it is increasing new business and product transfer fixed rates by up to 0.53% on Friday. It comes as the war in Iran has caused fears that inflation will hurt the UK economy. Petrol prices in the UK are already up 12p per litre to over 144p per litre since the start of the war, Newspage reports.
However, stocks have rallied today and oil prices have dropped amid hopes for an end to the conflict in the Middle East. This is despite Iran reportedly rejecting a peace plan proposed by the America
“Investors are pinning their hopes on a 15-point ceasefire deal unveiled by the US despite the proposals apparently being rebuffed by Iran,” said AJ Bell head of markets Dan Coatsworth.
‘Extreme’ rate rises
Justin Moy, Managing Director at Chelmsford-based EHF Mortgages, said the rate increases announced today are “extreme”. He said: “Extreme rate increases from Virgin Money are going to be a real shock to borrowers and brokers, as the market is quickly unravelling before our eyes.
“Increases of this magnitude are extremely rare, but will have a serious knock-on effect on other high street lenders who won’t want to be the cheapest in the best buy tables at the moment. When will this calm down is becoming harder to call as every hour passes.”
Elliott Culley, Director at Hayling Island-based Switch Mortgage Finance, said it will be some time before lenders get some confidence back in the market. He said: “The move from Virgin Money today is one of a lender that does not want to take on any new lending. With swap rates yo-yoing mortgage lenders will price in a higher margin to cover against sudden spikes.
“With news of a peace plan potentially scuppered it will be some time before lenders get some confidence back in the market.”
More criticism of the new rates
Dariusz Karpowicz, Director at Doncaster-based Albion Financial Advice, said: “0.75% in a single repricing is not a wobble. When nobody wants to be the cheapest on the best buy tables, you know the mood has shifted from caution to outright fear. The real question is whether this is 2008 again or just a brutal correction.
“Either way, products are vanishing daily, rates are climbing by the hour, and borrowers who hesitate are paying for it. If you are mid-application, lock your rate today. Tomorrow’s pricing is anyone’s guess.”
Martin Rayner, Director at Compton Financial Services, said borrowing costs may stay higher in the short term. He noted: “Swap rates have risen by nearly 1% in a month, and mortgage pricing closely follows these movements. Lenders aren’t acting in isolation, they’re responding to the cost of funding, so when swap rates move this quickly, repricing is inevitable.
“The real question isn’t whether lenders are overreacting, but whether the swap markets have moved too far, too fast. Much of this volatility is being driven by geopolitical risk, particularly the situation involving Iran. Markets tend to price in worst-case scenarios, especially around oil supply disruption, which feeds into inflation and rate expectations.
“If tensions ease, we could see rates improve, although likely not as quickly as they increased – meaning borrowing costs may stay higher in the short term. If tensions persist, elevated pricing is likely to remain for longer.”
