Mortgage storm looms as major lenders increase interest rates ahead of 'painful' Budget

This sudden reversal comes after a period of declining rates, which had seen the cheapest five-year fixed rate mortgage fall from 4.28 per cent to 3.68 per cent between early July and last week.

The move has sparked concerns among borrowers and industry experts, who warn that more lenders may follow suit in the coming weeks.

The rate increases are attributed to rising swap rates and growing economic uncertainties, including concerns over potential increases in Government borrowing.

NatWest announced that from Thursday 17, most of its two-year and five-year fixed and tracker rate mortgages would increase by 0.3 per cent. Their flagship five-year deal for borrowers with a 40 per cent deposit will rise from 3.79 per cent to 4.09 per cent.

Santander, which temporarily withdrew some mortgage deals last Friday, confirmed they would return with higher interest rates. From Tuesday, the bank increased some fixed rates by up to 0.22 percentage points.

TSB also joined the trend, raising rates on five-year fixed deals for first-time buyers. Two-year fixes will increase by up to 0.1 percentage points.

For homeowners remortgaging, TSB is increasing rates on five-year deals by up to 0.25 percentage points.

These changes have pushed the lowest available five-year fix to 3.79 per cent and the lowest two-year fix to 3.99 per cent.

The recent rate hikes are primarily driven by rising swap rates, which lenders use to price their fixed mortgage rates. As of October 10, two-year swaps were at 4.03 per cent and five-year swaps at 3.79 per cent, marking a significant increase from a month ago.

Chris Sykes, technical director at mortgage broker Private Finance, explained: "The margins lenders are making on rates has now been paper thin for the last few weeks and it is no surprise that these margins cannot be maintained by lenders, hence us seeing some reversals and slight rate increases."

Economic concerns are also contributing to the trend. The bond markets have become increasingly anxious about a potential increase in borrowing in the upcoming Budget, which could impact gilt yields used to price fixed-rate deals.

Justin Moy of EHF Mortgages added: "Expectations of how the market will react to the painful Labour Budget that is looming, coupled with nervousness around world oil prices increasing, makes for a tough narrative at the moment."

The rate increases are likely to impact borrowers, particularly those looking to remortgage or purchase a home.

Nicholas Mendes of mortgage broker John Charcol said: "For mortgage holders with less than six months remaining on their fixed-rate deal, it is advisable to start reviewing your options now."

Experts recommend that borrowers act swiftly to secure deals, as rates may continue to climb. Some lenders allow borrowers to lock in new rates up to six months in advance, potentially shielding them from further increases.

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Despite the recent hikes, the long-term outlook for interest rates remains uncertain. The Bank of England is still expected to cut its headline lending rate from five per cent to 4.75 per cent in November. However, borrowers should remain cautious.

As Sykes said: "I can't see rates reducing much more, unless there is a larger than 0.25 per cent reduction in base in the November MPC meeting, or if there is some really positive economic data that influences sonia swaps greatly."