Hundreds of mortgage products withdrawn as rates near 6%

As of this afternoon (September 27), at least 28 lenders had withdrawn products since the end of last week, with around half of these lenders having withdrawn all their fixed rate products.

Many have taken the action to withdraw as they try to grapple with how to price them against the backdrop of base rate uncertainty and volatile swap rate markets.

Santander and HSBC are the latest big lenders to enter the fray. Santander has pulled 28 fixed rate deals. While HSBC has removed all new residential and buy-to-let products “with immediate effect”, intending to return to the market tomorrow (September 28).

Nationwide has also warned brokers of rate hikes to the tune of 1.2 per cent from tomorrow, taking first-time buyer rates to 5.69 per cent with a product fee, and 5.99 per cent without one.

It's like shooting a moving target with a blindfold on.Jiten Varsani, FortyOne Money

“It’s all gone crazy,” said Trinity Financial’s director, Aaron Strutt. “These rates are expensive.

“The difficulty is people are going to be quoted 5.5 per cent rates. Are they going to take them? And for people who were on 1.5 and 2 per cent rates before, how are they going to afford this?

“With the sheer number of people on full capital repayment mortgages, your monthly is large at 2 per cent, let alone 6.”

Strutt said the only comparison he could make with the last few days was when the pandemic hit.

“It’s got a striking resemblance. When the pandemic hit, lenders pulled out of the market because they didn’t know what to do.”

He argued that it won't be long before other major lenders either withdraw products, up their rates, or both.

Yesterday (September 26), there were 3,880 residential mortgage products, according to Moneyfacts. This morning, there were 3,596.

Since Friday (September 23), the day UK chancellor Kwasi Kwarteng announced a sweep of tax cuts, 365 mortgage products have been withdrawn.

Some lenders which were offering fixed rate mortgages earlier today, such as HSBC, have had to withdraw products following a high level of demand, with some brokers waiting over an hour in queues to try and apply for deals on behalf of clients. One adviser coined it a “mortgage meltdown”.

Of those which have withdrawn products, eight of them sit in the top 20 lenders according to UK Finance’s gross lending table. These are Santander, HSBC, Halifax (part of Lloyds Banking Group), Virgin Money, Skipton, Leeds and Coventry building societies, as well as the Bank of Ireland all having withdrawn products so far. 

Property transaction fallout

After seeing yields dwindle as some lenders relaunch with higher rates, some brokers have said they are already starting to see buy-to-let investors drop out of property deals.

Managing partner at Helix Financial Partners, Adam Stiles, said shrinking profit margins were driving an uptick in deal fallouts. 

“With yields being so low down here, a lot are feeling the pinch on rates increasing to 4s and 5s. Combine that with stress tests and you're in a situation where it's hard to get 75 per cent loan-to-value.”

Founder of FortyOne Money, Jiten Varsani, noted a landlord client in Harrow, London, receiving a £1,900 per month in rent on a now £1,300 per month mortgage, compared to a £600 per month mortgage before. 

People are panicking. I had 70 emails from clients this morning.Chris Sykes, Private Finance

“These are some serious drops in rental profits,” Varsani said. “We’re trying to secure rates but it's like shooting a moving target with a blindfold on.”

If more landlords begin to exit the housing market, some have questioned whether the UK could require emergency measures such as a rent cap. 

This is because, while relinquishing more properties would allow supply to catch up with demand and level out house prices, if families and profit-driven investors buy up the freed stock then rents will inevitably increase, Private Finance director Chris Sykes explained.

And if a lot of landlords sell up in a short period of time, this could call for “drastic measures” from the government such as similar rent caps to those introduced in Scotland and New York, said Sykes.

“Over a longer period, it would be a steadier flow…It’s really tricky and it does need to be a balanced approach.”

Sykes said this morning he had 70 emails from clients panicking about the exodus of mortgage products from the market. “A lot of people are worried and trying to explore their options when not all the answers are out there.”

Separately to the mortgage market, following the pound’s crash, the foreign exchange market has seen some clients pull out of overseas property purchases due to it costing them thousands more.

“We are seeing clients shocked by the rising cost of their property completions in Europe – if they didn’t fix their exchange rate in advance,” said head of partnerships at A Place in the Sun Currency, Nikil Mahra.

“Clients have been left with the choice of a higher bill – or pulling out of their purchase altogether.”

‘It’s basically a mess’

The safe area is the mainstream mortgage market, according to director of London Money, Martin Stewart. 

“Buy-to-let or anything that’s complex is going to suffer greatly. 

“My line for a while has been - we need less landlords and more houses. Amateur landlords will be selling up, professional ones with a credit line can step in and pick some of them up. More commodities in the open market will lower house prices.”

Reacting to further product withdrawals today, Stewart added: “It’s always going to be the lenders which fall off the cliff first. It happened in 2008. It’s basically a mess.”

Boon Brokers adviser Josh Lillie reckons older borrowers will be impacted the most by the recent rate rises.

“First-time buyers are less impacted as they generally can go for a longer term - if they are younger - and therefore can reduce the impact of a higher rate,” he explained.

“Buy to let mortgages are always deemed as slightly higher risk so those rates are high, as well as limited company rates.

“In general, if I send a client a quote they need to get back to me on the same day for it to be secured, the market is that volatile right now.”

Some advisers have noted instances where couples have felt split on what to do.

“What makes it difficult is that in certain situations one half of a couple has one view and the other has the opposite – which makes for a tough conversation and highlights the overall level of confusion at the moment,” founder of Hudson Rose, Graham Taylor, said.

“We have some that were planning on moving who are now considering staying where they are due to the concern of the new monthly mortgage costs.”

Lenders to withdraw all fixed rates so far

Lenders to withdraw some, but not all, of their fixed rates so far are: 

• Santander
• Coventry Building Society
• Nottingham Building Society
• Halifax (all products with a product fee)
• Cambridge Building Society
• BM Solutions (all products with a product fee)
• Darlington Building Society
• Kensington
• Clydesdale Bank
• Leeds Building Society
• Marsden Building Society

ruby.hinchliffe@ft.com