Hundreds of mortgage products withdrawn as interest rates rise
Hundreds of mortgage products were withdrawn after the pound fell to its lowest level in decades against the dollar and the Bank of England said it would not hesitate to step in and raise rates further of interest.
Nearly 300 mortgage deals have been completed in the past 24 hours alone, reports The Guardian, with warnings that the base rate could climb to 6% next year.
This is more than double the current base rate, which is 2.25%.
Why are mortgage products being withdrawn?
The halt in new lending comes after the sale of UK bonds, which drove up the cost of public debt.
“Major mortgage players are raising the sails after the tide has changed. The dramatic overnight rise in market expectations for future rates has pushed up the cost of doing business, and lenders are pausing to reprice and reprice,” said Sarah Coles, senior personal finance analyst at Hargreaves Lansdown.
Market watchers grew increasingly concerned about the UK’s fiscal situation after Chancellor Kwasi Kwarteng presented his mini budget – a £45billion tax cut package on Friday.
The International Monetary Fund (IMF) has joined in the criticism, saying the Chancellor should ‘reassess’ his plan as it could drive up inflation, reports the Financial Times. In a statement, the IMF said that “given the high inflationary pressures in many countries, including the UK, we do not recommend large, untargeted fiscal programs at this stage. It is important that fiscal policy does not work against monetary policy.
Yorkshire Building Society, Virgin Money and Skipton Building Society are just some of the building societies that are ceasing all mortgage offers for new customers.
Santander and HSBC have followed suit and withdrawn mortgage products for new customers.
“We are temporarily removing all 60% and 85% LTV products from the new commercial lineup,” Santander said.
Nationwide, on the other hand, has significantly increased interest in its full suite of mortgage products and announced that its two-, three-, five- and ten-year fixed rate mortgage deals will rise between 0.9% and 1.2% from of Wednesday.
Although Nationwide has so far failed to withdraw loans offered to new customers.
HSBC, Santander and Lloyds Banking Group and Nationwide account for around half of the UK mortgage market, according to the Financial Times.
What does this mean for you and your mortgage?
Mortgage prices are likely to rise, but borrowers will also face a smaller range of products to choose from.
Mortgage borrowers who are already on fixed agreements are likely to be shielded from much of the upheaval for now.
But when they do have to strike a new deal, they will face significantly higher borrowing costs after all of Britain’s Finances forecast that a further 3.1 million households will have to renew their mortgages when their term expires. fixed rate in 2022-2023.
For the 1.6 million people benefiting from variable rate contracts, mortgage rates will see an immediate increase.
New buyers will likely find that the maximum amount they can borrow is now lower due to affordability stress testing.
And this problem is not limited to new buyers. Those looking to remortgage next year may find it harder to do so as they may not pass lender affordability stress tests.
“It is likely that more people than ever will stay with their current lender and accept product transfer rates,” said Aaron Strutt, mortgage brokers at Trinity Financial.
For some, rising mortgage costs will mean they will have to make tough decisions and cut spending on other things, but many people may have to cut back on essential expenses and simply won’t be able to cope. rise in mortgage costs.
“Households refinancing a two-year fixed rate mortgage in the first half of next year will see their monthly repayments jump to around £1,490 at the start of next year, from £863 when they took out the loan. mortgage two years ago,” said UK Chief Samuel Tombs. economist and Gabriella Dickens, senior British economist at Pantheon Macroeconomics.
What can you do there?
It might be worth shopping around for a fixed deal right now, especially if you have six months or less until your fixed mortgage deal expires, says the Guardian.
“If you have six months or less to get a fixed rate mortgage, it might be a good idea to start looking for a new rate. Given the turmoil in the market, you may want to speak with a broker who understands the rapidly changing outlook for the mortgage industry and can source the best rates.
Those with excess cash can reduce the bill by prepaying part of the mortgage. Although it’s rare to have the money to pay off a mortgage, you can save a substantial amount by paying it off early.
As a recession looks increasingly likely in the UK, check out our other tips on how to prepare for a recession and save money in these turbulent times.