Mortgage lenders have been pulling their fixed rate products - some without warning - amidst talks of an emergency base rate rise following the pound’s crash this morning to a record low.
Smaller lenders such as Scottish Building Society, Darlington, and CHL Mortgages have withdrawn all their fixed rate mortgages today (September 26), following Family Building Society's withdrawal on Friday (September 23).
Family BS was the first of what has become a growing list of lenders pulling products following UK chancellor Kwasi Kwarteng's raft of tax cuts for businesses and high earners, as well as home buyers, last week.
Much of this is unfunded and will need to be financed through issuing gilts. Bond yields soared at the end of last week. Changes to the gilt market tend to impact swap rates, which lenders use to guide their mortgage pricing decisions.
Derivatives markets are pricing in a 0.75 percentage point base rate rise in a week’s time, followed by a more than 1.5 percentage point hike before the Bank of England next meets in November.
On Friday, Family BS said: "Due to significant increases in the cost of funding fixed rate mortgages on Friday, all fixed rate products have been temporarily withdrawn from sale. We will return with a new set of fixed rate mortgages soon."
Some lenders have not given brokers any time to secure rates before withdrawing their products. In an email to brokers today, Scottish BS said it was withdrawing all its fixed rate products “with immediate effect”.
Today, Skipton Building Society also said it would temporarily withdraw an entire new business range, but gave brokers until "close of play" today to secure rates.
I usually don't worry about such things, as it is what it is, but even I'm concerned about the current situation.Jiten Varsani, FortyOne MoneyMeanwhile, Halifax has withdrawn everything but fee-free deals, and Kensington has withdrawn everything but 85 per cent loan-to-value and buy-to-let products.
FTAdviser is aware of at least seven lenders which have withdrawn either all, or the majority, of their fixed rate products.
“Swap rates are increasing quickly at the moment, and incredibly volatile so it’s hard for lenders to price fixed rates,” said mortgage sales head at London Mortgage Partners, David Gissing
“This is why they’re constantly pulling rates and re-pricing. I’m expecting more rate rises by the end of the year. We’ll surpass 5 per cent for your average fixed rate soon I’m sure. Before the end of the year if forecasts and predictions I’ve seen are accurate.”
There has even been talk of an emergency base rate increase to shore up the pound.Aaron Strutt, Trinity FinancialFollowing the chancellor's tax changes and significant jumps in swap rates, director at Trinity Financial Aaron Strutt also reckons a large base rate hike is “more than likely”.
“There has even been talk of an emergency base rate increase to shore up the pound,” he added.
“The lenders will be working out what to do but it seems highly likely there will be a lot of rate increases pretty soon.”
Average mortgage interest rates 2017 - 2022
Average mortgage rates | Sep-17 | Sep-20 | Sep-21 | Dec-21 | Aug-22 | Sep-22 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
Standard variable rate (SVR) | 4.60% | 4.44% | 4.41% | 4.40% | 5.17% | 5.40% | ||||||
Two-year fixed mortgage | 2.22% | 2.24% | 2.38% | 2.34% | 3.95% | 4.24% | ||||||
Five-year fixed mortgage | 2.77% | 2.49% | 2.63% | 2.64% | 4.08% | 4.33% | ||||||
10-year fixed mortgage | 3.23% | 2.69% | 2.99% | 2.97% | 4.19% | 4.33% |
Source: Moneyfacts
From the tailend of last year, mortgage rates have continued to rise from record lows of less than 1 per cent to more than 4 per cent today alongside a succession of Bank of England base rate rises.
Some brokers are saying they have never seen an environment like this before. “I don't think we'll see withdrawals of all fixed rates but yes brokers are definitely bracing for some large rate rises,” said Jiten Varsani, founder of FortyOne Money.
“I usually don't worry about such things, as it is what it is, but even I'm concerned about the current situation. It's nuts and I've never known anything like it.”
This is not the first time lenders have temporarily withdrawn from the UK’s mortgage market this year. Many lenders have struggled to maintain service levels to brokers against the backdrop of a rapidly rising rate environment.
When lenders can start to re-price, you’re going to get another spike of activity as they re-launch into the market. It’s been relentless this year.David Hollingworth, L&C MortgagesSaffron Building Society, which temporarily withdrew at the beginning of August, told FTAdviser it was working through more than double its usual pipeline.
Director at L&C Mortgages, David Hollingworth, said market volatility will need to settle down soon if lenders have a hope of accurately re-pricing products.
"It’s been very challenging, but brokers have got used to dealing with rapid and frequent changes. It’s a continuation of that, but when you’re not replacing products it adds a level of urgency," Hollingworth explained.
"If you can’t say to a client 'you can go from this to this', and you don’t know what will be re-launched, that's very disconcerting.
"When lenders can start to re-price, you’re going to get another spike of activity as they re-launch into the market. It’s been relentless this year."
ruby.hinchliffe@ft.com
