Barclays Raises Mortgage Rates Amid Inflation Concerns

Barclays, a major lender, has made the bold move to increase its mortgage rates following disappointing inflation figures. The decision comes amidst fears that the Bank of England may delay interest rate cuts until the Autumn. This strategic shift by Barclays marks the second time in three weeks that the bank has adjusted its pricing.

The adjustment in rates by Barclays coincides with the recent inflation data, which revealed a slower-than-expected decline to 3.2% in March. Of particular concern is the stubbornly high services inflation at 6.0%, closely monitored by the Bank of England’s Monetary Policy Committee.

City traders have responded by adjusting their predictions on the timing of interest rate cuts. Previously expected in June, a rate cut is now more likely in August or even later in the year, according to market sentiment.

The new rates introduced by Barclays include a two-year fixed deal with no product fee and a 75% Loan-to-Value ratio at 4.98%. Similarly, a five-year fixed deal with the same terms now stands at 4.8%. These changes took effect immediately.

Aaron Strutt, head of PR and communications at Trinity Financial, noted the competitive pricing of Barclays compared to other lenders. According to Moneyfacts, the average 2-year fixed residential mortgage rate remains at 5.81%, while the average 5-year fixed rate stands at 5.39%.

Mortgage Dilemma: Pay Off or Increase Stake?

In another scenario, a homeowner with a shared ownership property valued at £250,000 faces a decision on how to manage their mortgage and savings. With a 40% stake in the property and a mortgage of £37,000, the homeowner pays £235 per month towards the mortgage and £595 in rent.

As the mortgage deal approaches its end in June, the homeowner, S.R., contemplates using their £100,000 savings to pay off the mortgage or increase their stake in the property. The property’s lease is nearing 80 years, and extending it would incur costs around £8,000, along with staircasing expenses.

David Hollingworth, a mortgage broker, advises that the homeowner’s situation offers various options. Staircasing, the process of gradually increasing ownership percentage, could lead to full property ownership over time. However, paying off the mortgage would reduce monthly costs and shield against potential interest rate hikes.

The decision between paying off the mortgage or increasing ownership stake involves weighing the benefits of reduced monthly costs against potential future house price increases. Hollingworth emphasizes the importance of considering long-term implications and costs associated with each option.