Just when we thought things had settled down, another mortgage storm as erupted.
Last week inflation fell – in March the Consumer Prices Index recorded a 10.1% annual rise in prices but April’s revealed the year-on-year increase was 8.7%. This might seem like a promising development.
But it was not. Inflation did not fall far enough and as a consequence Swap rates – which is essentially the rate mortgage lenders pay to borrow money – increased.
A number of lenders have now hiked their prices further or pulled fixed-rate products completely. Virgin Money, Nationwide and Coventry Building Society are amongst the names shelving deals or adding price hikes to their range.
If you are feeling a sense of deju vu, then you have good reason.
This is because a similar scenario played out in September 2022 after the infamous mini-budget which gave the markets a fright and sent interest rates on mortgages soaring.
Things seemed, recently, to be calming down following those events. Mortgage rates were stabilising and fixed-rate deals were not increasing at the same galloping rate as the Bank of England’s base rate.
Until last week and the announcement about inflation.
Jamie Lennox, director at Dimora Mortgages, said: “For many mortgage holders, it may have felt like the outlook was improving week on week following the mini-Budget, only to have that rug ripped out from below their feet.
“Last week, the mortgage outlook went from benign to bleak very quickly. With the Chancellor openly stating he is comfortable with the idea of higher rates despite the risk of recession, this will be hugely worrying and uncomfortable for the everyday people of this country who already have their backs up against the wall.”
Let’s take a look at some of the most asked questions around the latest events and try to answer your concerns…
How many mortgages have been pulled?
Since the start of last week, the number of mortgages has fallen from 5,385 deals to 5,012, according to Moneyfactscompare.co.uk.
Mortgage brokers have reported being inundated with emails from lenders withdrawing deals.
Among the lenders pulling selected fixed-rate deals are Bank of Ireland, Halifax, Principality Building Society and Scottish Building Society.
Meanwhile Aldermore, Foundation Home Loans and Tipton & Coseley Building Society have pulled their entire fixed rate range, Moneyfactscompare.co.uk revealed.
It is expected more will follow.
How high have fixed rates risen?
As well as deals being withdrawn, lenders have also been increasing rates on other fixed-rate mortgages.
The average rate on a two-year fixed rate was 5.26% at the start of May. Eight days ago it was 5.34% and today it’s at 5.38%.
The steady rise is also apparent in the five-year fixed rate market. The typical rate has gone from 4.97% at the start May to 5.01% eight days ago to 5.05% today.
Lenders such as Nationwide, one of the UK’s top lenders, has increased its fixed rate products for new customers by up to 0.45%. Virgin Money, meanwhile, increased fixed rates on selected products by up to 0.12%.
It is predicted more lenders are likely to follow suit.
What is the cause of the mortgage mayhem at the moment?
“This volatility is down to the concerns surrounding future interest rate hikes, and lenders are reassessing their propositions,” explained Rachel Springall a financial expert at Moneyfactscompare.co.uk.
Indeed, the lenders began getting jittery on Wednesday last week when it was announced inflation was at 8.7%.
Whilst this was lower than the previous month’s 10.1% – it was not low enough. The target for inflation is 2% and the current figure is clearly some way off this marker.
The Bank of England has been increasing interest rates to combat inflation. Therefore, with inflation still way too high – this led to predictions of more base rate hikes to as much as 5.5%. And that, in turn, led to lenders reacting with product changes.
Who will be effected the most by mortgage rate rises and product withdrawals?
Deals being withdrawn will not impact anyone who is already signed up to a fixed rate – you are secure in your deal until it expires.
The falling availability of new deals and higher pricing will, however, impact anyone exiting their mortgage deal around now.
When they come to remortgage, there will be less choice and slightly higher rates than there would have been earlier this month.
Springall explained: “Consumers looking to refinance will find rates around 5% on average for a fixed deal, compared to around 3% a year ago. It is vital borrowers seek advice to assess the situation and to find a mortgage that suits their circumstances.”
What can you do if you are about to remortgage?
If you are about to remortgage, you are very likely to be looking at a deal which will come with higher repayments. For this reason it’s a really good idea to speak to a broker.
They have their fingers on the pulse and will be aware of the deals which are available and which are suited your circumstances. For example, it may be more suitable for you to switch to a tracker mortgage or discounted variable.
How long will this mortgage volatility continue?
No one can predict what will happen to mortgage rates, but it is widely expected more lenders will pull products and increase fixed rates, so borrowers are being urged to prepare for a bit of a bumpy ride in the short term.
Homeowners and buyers are also being advised not to panic.
Ross McMillan, owner and mortgage adviser at Blue Fish Mortgage Solutions, said the headlines may seem scary for homeowners or would-be buyers but knee-jerk reactions to unexpected blips may result in bad outcomes.
He added: “What happened in the second half of last week was undoubtedly a tremor under the already slightly wobbly foundations of the UK mortgage market.
“However, the lessons from the mini-Budget debacle of 2022 should be that this volatility will almost certainly be a short-lived and temporary storm that will pass.
“Fuelled by pessimism, speculation and fear, a rush by some to secure deals months in advance after the mini-budget fallout has proven a costly mistake for many and so it’s vitally important that similar rash decisions are avoided this time.”
