First Time Buyer
Mortgage lenders pull fixed rate deals: What it means for you
Major mortgage lenders including Halifax, Virgin Money and Skipton Building Society have moved to withdraw their fixed rate products while others are also expected to follow suit.
Halifax confirmed it would withdraw all products with a product fee by the end of tonight while Virgin Money temporarily removed all its products for new customers from 8pm last night.
Meanwhile Skipton Building Society confirmed yesterday that it would temporarily withdraw its new business product range with immediate effect. It said it was working hard on a new range which would launch in due course.
Leeds Building Society also said it would take down selected fixed rate deals.
Elsewhere, The Nottingham confirmed it would reprice its residential, buy-to-let, holiday let, retirement interest-only and self-build products as of 6pm last night and would take down 14 additional products. It came as it released some new two- and five-year fixed rates with two-year fixed rate deals starting from 6.04% and five-year fixed rates beginning from 5.98%.
Clydesdale Bank also took down select two and five-year capital and interest rates between 75% and 90% loan to value (LTV) deals with a £999 fee as well as its five-year fixed rate buy-to-let products at 75% LTV with £1,999 fee from 8pm last night.
Paragon also confirmed it would take down the fixed rate products in its portfolio, non-portfolio and product transfer buy-to-let range from 5pm yesterday.
The Bank of Ireland also withdrew all buy-to-let and residential rates as of 5pm yesterday and said it would be relaunching new residential and buy-to-let ranges as soon as possible.
Why are lenders withdrawing mortgage products?
The markets are spooked and there are several factors at play.
The pound fell to $1.03 when trading opened in Asia yesterday morning – a low not seen since 1971. It rebounded slightly to $1.07 but wasn’t enough to restore confidence in the markets.
It came after a range of tax-cutting measures were announced by Chancellor Kwasi Kwarteng in his mini Budget last week. And over the weekend, he suggested more were on the way.
To restore some stability, the government said it would set out further details on its fiscal rules while the Office for Budget Responsibility (OBR) said it expects to publish a full forecast. It came following criticism of Kwarteng as he was unable to produce figures or analysis accompanying his stealth tax cuts. Further, the government also said there will be a Budget in the Spring.
And the Bank of England also stepped in, with the governor, Andrew Bailey stating the Monetary Policy Committee “will not hesitate to change interest rates as necessary to return inflation to the 2% target” as markets forecast the base rate to hit 6% next year.
The base rate was hiked by the Bank of England last week to 2.25%, and it is also expected to make an emergency base rate rise in the coming days.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “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.”
She explained that fixed rate mortgages don’t just depend on the rate today, they also depend on rate expectations.
“The key for the mortgage market is gilt yields. When rates rise, gilt yields also rise, and these feed through into the swap rates that drive the fixed rate market.”
Swap rates are an agreement between two parties where they agree to exchange one stream of future interest payments for another, based on a specified principal amount. They are used by mortgage lenders to mitigate the interest rate risk in a fixed rate mortgage. Swap rates have risen dramatically, with two and five-year swap rising by nearly 1% in a week. Rising swap rates mean that the cost of funding for lenders has increased.
Coles continued: “The dramatic fall in the pound on Monday led to fears of inflation – because the price of anything that’s imported will rise. As a result, it led to expectations that the Bank of England would hike rates to try to bring it back down again.
“For a while yesterday, there were expectations of a swift emergency rate rise. Traders then started pricing in a series of rate rises to 6% – bolstered by a statement from the Bank that it would be bold in its efforts to bring inflation back down to the 2% target.”
What does this mean for you?
For anyone coming to the end of a fixed rate mortgage, or hoping to buy, this means fewer mortgages to choose from, and that rates will be rising, Coles added.
“Someone who fixed for 2% two years ago could be looking at a remortgage rate at 5% by next week. If they had a £200,000 mortgage over 25 years, that’s a rise in monthly payments from £848 to £1,169 – or £321. That’s a huge amount of extra money to have to find each month on top of everything else.”
She added that for any homeowner with six months or less to run on a fixed rate mortgage, it’s worth shopping around for a new rate now, because you can lock in a deal up to six months in advance and protect yourself from rises.
“Given the market turmoil, you may want to talk to a mortgage broker who is across the market and can track down the best rates”, she added.