Hundreds of mortgage products withdrawn as interest rates surge

Hundreds of mortgage products have been withdrawn after sterling crashed to the lowest levels in decades against the dollar and the Bank of England said it wouldn’t hesitate to step in and raise interest rates further.

Hundreds of mortgage products have been withdrawn after sterling crashed to the lowest levels in decades against the dollar and the Bank of England said it wouldn’t hesitate to step in and raise interest rates further. 

Almost 300 mortgage deals have been pulled in the last 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Why are mortgage products being withdrawn?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 UK bonds sold off, driving government borrowing debt costs higher.  

“Major mortgage players are hauling in the sails after the wind changed. The dramatic overnight hike in market expectations of future rates has ramped up the cost of doing business, and lenders are taking a break to reassess and reprice”, said Sarah Coles, senior personal finance analyst at Hargreaves Lansdown.  

Market watchers have become increasingly concerned about the UK’s fiscal position after chancellor Kwasi Kwarteng delivered his mini budget – a £45bn tax cut package on Friday. 

The International Monetary Fund (IMF) has joined the criticism, saying the chancellor should “re-evaluate” his plan as it could drive inflation higher, reports the Financial Times. In a statement, the IMF said that “Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture. It is important that fiscal policy does not work at cross purposes to monetary policy.” 

Yorkshire Building Society, Virgin Money and Skipton Building Society are only a few of the building societies which are ceasing all mortgage offers for new customers.  

Santander and HSBC followed suit and withdrew mortgage products for new customers.  

“We’re temporarily removing all 60% and 85% LTV products from the new business range,” Santander said.  

Nationwide, on the other hand, significantly raised interest across its full line of mortgage products, and announced its two, three, five and ten year fixed rate mortgage deals will be increasing between 0.9% and 1.2% from Wednesday.  

Although Nationwide has so far fallen short of withdrawing loans offered to new customers.  

HSBC, Santander and Lloyds Banking Group and Nationwide account for roughly half of the UK's mortgage market, according to the Financial Times.  

What does this mean for you and your mortgage?  

Mortgage prices are likely to rise, but also borrowers will face a smaller pool of products to choose from.  

Mortgage borrowers who are already on fixed deals are likely to be protected from much of the upheaval for now.  

But when they do have to find a new deal they will face significantly higher borrowing costs after all UK Finance predicts that another 3.1 million households are due to renew their mortgages when their fixed-rate periods expire in 2022-2023.   

For the 1.6 million people on variable rate deals, rates on the mortgages will see an immediate rise.  

New buyers are likely to find that the maximum amount they can borrow is now lower due to affordability stress testing.  

And this problem is not just confined to new buyers. Those looking to remortgage next year may find it more difficult to do so as they may be unable to pass lenders’ affordability stress tests.  

“Probably more people than ever will stay with their existing lender and take product transfer rates,” said Aaron Strutt, of Trinity Financial mortgage brokers.  

For some the increase in mortgage costs will mean that they need to take tough decisions and cut down spending on other things, but many people may have to cut down on essential spending and simply may not be able to weather the increases in mortgage costs.  

“Households refinancing a two-year fixed rate mortgage in the first half of next year will see monthly repayments jump to about £1,490 early next year, from £863 when they took on the mortgage two years prior,” said Samuel Tombs, chief UK economist and Gabriella Dickens, senior UK economist of Pantheon Macroeconomics.  

What can you do about it? 

It may be worth shopping around for a fixed-deal right now, especially if you have six months or less before your fixed-mortgage deal runs out, says the Guardian.  

“If you have six months or less to run on a fixed-rate mortgage it might be wise to start shopping around for a new rate. Given the market turmoil, you may want to talk to a broker who understands the fast-changing mortgage sector outlook and can track down the best rates.”  

Those who have excess cash can reduce the bill by paying part of the mortgage early. While it may be rare to have the money to pay off a mortgage, you can save a substantial amount by paying off early.  

With a recession looking increasingly likely in the UK, check out our other tips on how to prepare for a recession and save money during these turbulent times.  

Recommended

State pension errors – why tens of thousands of mothers could be missing out on millions in state pension payments
State pensions

State pension errors – why tens of thousands of mothers could be missing out on millions in state pension payments

LCP launches Mothers Missing Millions campaign amid DWP state pension errors.
3 Dec 2022
The top funds to invest in now
Funds

The top funds to invest in now

As market volatility continues, here are the top funds, stocks and investment trusts investors are putting their money into, according to one investme…
2 Dec 2022
The best places to live in the UK – and how much they will cost you
House prices

The best places to live in the UK – and how much they will cost you

Thinking of moving? Here are the best places to live in the UK and how much they will cost if you are buying.
2 Dec 2022
The pros and cons of smart meters – should you switch?
Personal finance

The pros and cons of smart meters – should you switch?

A smart meter can help you keep tabs on your energy usage, but is it better than a regular meter? We take a look at smart meters vs regular meters.
2 Dec 2022

Most Popular

Is it cheaper to leave the heating on low all day?
Personal finance

Is it cheaper to leave the heating on low all day?

The weather is getting colder and energy bills are rising, but is it really cheaper to leave the heating on low all day or should you only turn it on …
1 Dec 2022
Fan heater vs oil heater – which is cheaper?
Personal finance

Fan heater vs oil heater – which is cheaper?

Sales of portable heaters have soared, as households look to cut their energy costs. But which is better: a fan heater or an oil heater? We put them t…
21 Nov 2022
UK house prices fall at their fastest pace since 2020
House prices

UK house prices fall at their fastest pace since 2020

UK house prices fell 1.4% in November, their biggest fall since June 2020.
1 Dec 2022