High street mortgage lenders are still raising interest rates despite an emergency intervention by the Government to reassure markets. 

TSB, Barclays, Royal Bank of Scotland and NatWest all increased the price of fixed-rate deals today, with the latter raising its rates by up to 0.75 percentage points.

New Chancellor Jeremy Hunt abandoned almost all of his predecessor’s tax cuts yesterday in a bid to calm bond markets.

The effect was immediate and forecasts for further Bank Rate rises — which are ultimately passed onto mortgage borrowers — fell in the hours after the U-turn.

The central interest rate is now expected to peak between 5 and 5.25pc next year, down from a 5.75pc peak forecast last Friday.

It was hoped lower borrowing costs would feed into lenders’ pricing, but four high street banks proceeded with rate increases for fixed-rate deals this morning.

Adrian Anderson, of mortgage broker Anderson Harris, said the Bank of England was still expected to make a “hefty” increase to interest rates in November.

He said: “Lenders will still be pricing future rises into their own deals. Banks are also managing an overwhelming volume of mortgage applications at the moment, so none of them want to be at the top of the best buy tables with the cheapest rates.” 

Even though British government bond (gilt) yields, used by banks to price mortgages, fell on Monday, experts said the damage to household finances was already done.

Inflation remains at a 40-year high and investors have priced in the Bank Rate rising by a whole percentage point next month, taking it to 3.25pc. Mr Anderson added: “We should see a little bit of easing on fixed-rate increases, either rising at a slower rate or even holding where they are.”

The average two-year fixed rate is now priced at 6.53pc, more than two percentage points higher than 4.24pc recorded on the day before the mini-Budget last month, according to analyst Moneyfacts. Meanwhile the typical five-year rate has risen from 4.33pc to 6.36pc in the same period.

Assuming mortgage rates rise by the Bank of England’s interest rate decision next month, the average two-year deal could exceed 7pc before Christmas.

A 7pc rate on a £200,000 mortgage would push monthly repayments up to £1,414 – compared with £1,082 on a typical two-year rate of 4.24pc before the mini-Budget.

Source: Telegraph.co.uk