Many prospective homeowners will now begin to see their mortgage deals being withdrawn by banks and building societies after a fall in the value of the pound fuelled experts to forecast a sharp rise in interest rates.
Amongst those who have withdrawn mortgage deals include Virgin Money and Skipton Building Society. Both have now paused mortgage offerings for new customers due to market conditions while the Bank of Ireland announced that all mortgage deals had been withdrawn.
Halifax further announced this morning that they would be stopping mortgage offers with product fees.
This has occurred as a result of the pound hitting record lows early this week, with the Bank of England consequently announcing that they would “not hesitate” to hike interest rates up further.
The pound plummeted against the US Dollar earlier this week, hitting a record low of $1.03, after the UK’s Chancellor, Kwasi Kwarteng announced more tax cuts alongside Friday’s mini budget.
Friday’s mini budget saw pledges that will require a large increase in government borrowing which led to growing concerns from investors about the UK’s ability to meet that debt.
Former US Treasury Secretary, Larry Summers tweeted that he was “very pessimistic about the consequences of utterly irresponsible UK policy on Friday … [but] did not expect markets to get so bad so fast.”
The weaker pound will now make imports and goods priced in US dollars, such as oil, much more costly.
The Bank of England has now confirmed that they will make a full assessment concerning potential interest rate changes at the next meeting at the beginning of November.
It has been anticipated by financial experts that interest rates could exceed double rates by next April, reaching 5.8% up from their current level at 2.25%. Previous predictions prior to last week’s mini budget anticipated interest rates to reach 4% by next May.m
Following Monday’s volatility, financial markets updated predictions and said interest rates could now more than double by next April to 5.8%, from their current level of 2.25%, to curb inflation – the rate at which prices for consumers rise. Interest rates had previously been forecast to hit 4% by next May.
The costs of long-term borrowing now mean that the current cost to mortgage lenders offering new deals would be much more costly on their part. Additional concerns surround the idea that prospective homeowners may be rushing into securing mortgages at favourable rates before interest rates jump. As such, if they do rise exponentially, these prospective homeowners may be unable to afford their higher repayments owed to their mortgage lenders.
According to Moneyfacts, the number of residential mortgages on offer by lenders fell to 3,596 on Tuesday, compared to 3,961 deals on Friday when the mini budget was announced.
The Chief Executive of Principality Building Society, Julie-Ann Haines, told BBC News that as a lender they need to do to twothings. They “firstly to make sure that customer mortgages are affordable. We have to do that under regulation and we therefore need to stress-test and make sure that if the Bank of England base rates go up that consumers can still afford their mortgage.
And of course the second thing is banks and building societies have to be able to make a margin and so they have to price that increased financial market view of the interest rates into their products, and that’s why you’re seeing [mortgage] rates start to really go up quite fast over the past two to three months.”
Chief UK Economist at Pantheon Macroeconomics, Samuel Tombs, further told the BBC that if interest rates do rise as predicted, the average UK household that is refinancing their two-year fixed mortgage in the first half of next year will see their monthly repayments rise from £863 to £1,490.
Both Virgin Money and Skipton Building Society confirmed that submitted mortgage applications would still be processed, and that they plan to issue a new range of mortgage deals in the coming weeks.
Meanwhile, HSBC announced that they did not have any plans to change their mortgage offerings, with Natwest confirming that their rates were under “continual review in line with market conditions”.
