The mortgage market has experienced a number of temporary withdrawals in the last week with leading UK lenders HSBC, Santander, Clydesdale Bank and Natwest all removing deals in the last few days. However, some of these lenders have returned to market with revised deals at higher rates, with others reported to be doing so in the coming days. Increased swap rates (the rates that underpin lending in the UK) have been cited as the primary factor.
In this article we explain what is happening in the mortgage market, why banks are withdrawing mortgage deals, how this could affect borrowers and what you can do if you find yourself without a mortgage deal you can afford.
Which lenders are withdrawing mortgage deals?
Last week HSBC announced that it would withdraw many residential and buy-to-let mortgage deals with a view to reopening new mortgage deals at a later date. However, applications were closed early due to a surge in demand, triggering a backlash from homebuyers and mortgage brokers alike.
Santander is the latest lender to announce a withdrawal with a spokesperson saying that it was prompted by "market conditions".
The BBC has reported that NatWest is increasing rates for new residential mortgages by 0.2 percentage points, and buy-to-let mortgages will go up to 1.57 percentage points, alongside warnings that rates are set to rise further.
Why are banks withdrawing mortgages?
Recent ONS figures revealed inflation was still at 8.7% and is not reducing as fast as had been anticipated. There has been further speculation that the Bank of England will increase the Bank of England base rate by at least 0.25 percentage points when the Monetary Policy Committee meet next on the 22nd of June and if that does come to fruition, it will be the 13th consecutive interest rate rise. A base rate rise has a direct impact on mortgage lenders and the latest speculation has resulted in a number of deals being removed from the market over the last week.
Why are mortgage interest rates rising?
Mortgage interest rates reflect the rates at which a lender borrows money and the swap rates that are charged when banks and building societies lend to homebuyers. The BBC has reported that the average two-year fixed-rate mortgage deal has risen from 3.03% to 5.86%, while an average five-year deal rose from 3.17% to 5.51% since May 2022. (Figures compiled by Moneyfactscompare.co.uk)
Analysts predict that the BOE base rate could peak at around 5.5% before starting to fall later this year. Previously, it had been predicted to peak at around 4.5%.
A combination of increasing inflation and the base rate pushing up swap rates means that mortgage borrowers are likely to see fixed-rate mortgage deals increasing over the foreseeable future.
If the Bank of England raises the base rate from its current rate of 4.5%, mortgage lenders are likely to increase the rate of lending accordingly, making borrowing more expensive. The increase is likely to be passed onto new homebuyers and those remortgaging from existing deals that are coming to the end of their deal periods. With around 1.5 million households coming to the end of their existing mortgage deals this year, borrowers are likely to see their mortgage payments increase significantly once their current mortgage deals expire.
What happens if your mortgage deal is pulled?
If your mortgage deal has been pulled and you have missed the deadline for application submissions to your lender, you will need to search for a new mortgage deal. Other mortgage deals will usually be available but if you were dealing with your lender directly, you may need to widen your search to find a new mortgage deal.
Lenders will usually honour applications that are currently being processed so if you have already completed a new mortgage application based on a deal that has been pulled, you should not be affected. It is always wise to contact your lender to check on the progress of your mortgage application and to ensure that your deal is still valid.
What to do if your mortgage deal has been pulled
Whether you are in the process of remortgaging from an existing mortgage deal or buying a new home, it is imperative that you act fast if your mortgage deal is pulled or repriced. Those who are remortgaging could end up paying the lender's standard variable rate (SVR) if their current mortgage deal expires and a new one is not yet in place - this could be very expensive as some SVRs have increased to around 7% in recent weeks. Similarly, if you are in the process of buying a new home, you should act quickly to avoid your house purchase falling through.
In either case, it would be wise to conduct a search of the whole market to ensure you are getting the the best deal. If you are already dealing with a mortgage broker, contact them to find out what other deals are available to you. If you do not have a mortgage broker and were dealing with the lender directly, you can speak to a vetted mortgage broker using VouchedFor*. VouchedFor will list mortgage brokers in your area that have been vetted by other customers and you can read reviews based on their costs, customer service and expertise.
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