Households urged to lock in a new mortgage deal now after Barclays ups rates and gilt yields hit 27-year high

Households are being urged to lock in a new mortgage deal as soon as possible, after Barclays announced it’s upping rates.

The mortgage lender is increasing rates across a number of its best buy deals by 0.1 percentage points from tomorrow.

It comes as Britain’s long-term government borrowing costs hit a 27-year high as global investors fretted the state of public finances ahead of an autumn budget.

With the Liz Truss-era mortgage spike fresh in the memory, homeowners and buyers will be concerned that higher gilt yields may well have a negative impact on mortgage rates.

Barclays means its market leading two-year for those buying with a 40 per cent deposit will rise from 3.75 per cent to 3.85 per cent. 

On a £200,000 mortgage being repaid over 25 years, that’s the difference between paying £1,029 a month and £1,039.

Increasing: From tomorrow a number of best buy mortgage rates will rise by 0.10 percentage points

Barclays also currently offers the second lowest five-year fix for home buyers at present. However, from tomorrow this will rise from 3.95 to 4.05 per cent.

The lowest rates offered by Barclays tend to come with a £899 fee attached, although it does also offer fee free options at slightly higher rates. 

Those buying with smaller deposits are also set to  lose out from tomorrow’s changes.

Barclays’ lowest two-year fixed rate for those buying with a 25 per cent deposit will rise from 3.79 to 3.89 per cent tomorrow. This will no longer be a best buy.

Meanwhile, those buying with a 15 per cent deposit will see rates go from 4.12 per cent to 4.22 per cent.

Households looking to remortgage will also be negatively impacted. 

Barclays’ lowest five-year fix will rise from 3.93 per cent to 4 per cent, albeit there is a marginally better rate for its Premier banking customers.

The change of rates by Barclays is likely in response to rising swap rates.

Fixed rate mortgage pricing is largely based on sonia swap rates – the inter-bank lending rate, which is also based on future interest rate expectations and therefore impacted by gilt yields.

When sonia swaps rise sufficiently it often results in fixed mortgage rates going up, and vice versa when they fall.

In recent weeks they have been rising. Since 1 August, two-year sonia swaps have risen from 3.56 per cent to 3.74 per cent, while five-year swaps have gone from 3.63 per cent to 3.83 per cent.

As a result, it is likely we will see mortgage rates rise, rather than fall over the coming weeks.

‘Swap rates have been going up so we have been expecting some rate increases,’ said Aaron Strutt of mortgage broker Trinity Financial.

‘High gilt yields and rising government borrowing costs are clearly not good news and they could easily lead to higher mortgage rates.

‘For the moment there have not been significant price hikes but it’s probably worth locking in a mortgage rate if you are buying somewhere or due to remortgage, to try and keep away from any market turbulence.’