Market Turmoil Forces Lenders to Pull Back on Mortgage Deals

Market Turmoil Forces Lenders to Pull Back on Mortgage Deals
Mike Whitehead

Author: Mike Whitehead

Content Editor

Updated: September 27, 2023

Chancellor Kwasi Kwarteng’s mini-budget statement on Friday (23rd September) created shockwaves in the financial markets when they reopened after the weekend, sending the already fragile value of the pound tumbling – not just against the $US dollar where it almost reached parity ($1.03) – but across the board.

The effects of a weak currency  – through higher costs of imported goods and raw materials – will only add to the inflationary pressures already at large in the U.K economy which, in turn, leaves the Bank Of England (BofE) no other option but to continue its current policy of raising the base interest rate (currently 2.25%) even higher.

The next official meeting of the BofE’s monetary policy committee (MPC) is not scheduled to take place until early November. However, it has been suggested that the MPC could convene before the end of the week to agree to an emergency increase in the base rate, possibly by as much as 0.75% to 3%, in order to steady the pound, before a further increase in November.

Most market analysts have now revised their estimates on where the central bank’s base rate could be by this time next year, with the worst case scenario now between 5.5% and 6%. The knock-on effect for the housing market – and particularly for mortgages – if this becomes reality can’t be understated with the ever-growing possibility of a slump in property prices to levels not seen since the last big crash in the 1990s.

How high will mortgage rates go?

A rise in the central bank’s base rate can only mean one thing – mortgage rates will likely follow. But how high they could go is still relatively unknown at this stage.

In fact, some mainstream lenders such as HSBC and Santander didn’t even wait for the BofE’s latest base rate rise, rather choosing to increase their mortgage offers in line with what was expected to happen. This type of approach is likely to continue for the foreseeable future.

In light of the market turmoil seen this week, other mainstream lenders – Halifax, Virgin Money and Skipton Building Society – have taken the unusual step of withdrawing some of their mortgage range in order to re-price these products due to the ever escalating cost of borrowing. It’s expected these providers will re-introduce their fixed-rate offering (at higher rates) by the end of the week.

But, on the more positive side, it’s worth remembering that this is only a handful of lenders, out of around 100, and, so, the vast majority have not yet altered their stance at all and look like they’re opting to see how quickly the markets settle before making any knee-jerk decisions.

As every mortgage balance is different, it’s impossible to predict how this could affect everyone on an individual basis. However, based on an average size household (circa £250,000 mortgage) looking to refinance a two-year fixed rate next year the repayments could almost double in size from £863 per month currently to £1,490 if the worst case estimate on base rates turns out to be right.

What to do if you’re concerned about your mortgage

It’s fair to say the news headlines don’t make positive reading at present if you’re a homeowner with a mortgage. But, rather than worry unnecessarily, you should reach out to an advisor who has experience dealing with this type of situation.

If you want to get in touch we can introduce you to a mortgage broker we work with who can take a look at your own personal situation, what your current position is with your mortgage and outline what options are available to you so you have complete peace of mind.

Maximise your chance of approval with a dedicated specialist broker

Maximise your chances of approval, whatever your situation - Find your perfect mortgage broker