British bond and currency markets have been in turmoil since Finance Minister Kwasi Kwarteng announced his “mini-budget” on Friday.
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LONDON – UK lenders Virgin Money, Halifax and Skipton Building Society have withdrawn some of their mortgage deals with customers following the turmoil in UK bond markets.
Virgin Money and Skipton Building Society have temporarily suspended mortgage offers to new customers, while Halifax — owned by Lloyds Banking Group — plans to stop any fee mortgage products, which usually offer lower interest rates.
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A Virgin Money spokesman said this was due to “market conditions”, while Halifax attributed the move to “significant changes in pricing in the mortgage market”.
Skipton Building Society said they had paused their products to “reassess following the market reaction in recent days”.
Britain’s bond and currency markets have been in turmoil since Finance Minister Kwasi Kwarteng announced his “mini-budget” on Friday, which includes significant tax cuts and a push towards “trickle-down economics”. The yield on the UK’s 10-year gilt bond jumped to levels not seen since 2008 on Monday, while British pound fell to an all-time low against the dollar.
Inflation fears were fueled by market moves that showed the Bank of England would need to keep raising interest rates to combat rising prices. The central bank said so would not shy away from this as it aimed to bring inflation back to 2% and followed developments closely.
Markets have begun to price in a rise in the prime rate to 6% next year from 2.25% currently, raising concerns among mortgage lenders and borrowers. This prime rate is the benchmark for all types of mortgages and loans in the country.
“The average quoted interest rate for a two-year fixed-rate mortgage is likely to rise to around 6% early next year if the MPC [Monetary Policy Committee] raised the Bank’s interest rate as quickly as markets expected, 400 basis points higher than two years earlier,” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, and colleague Gabriela Dickens, Sr., said in a research note an economist in the United Kingdom.
“Households refinancing a two-year fixed-rate mortgage in the first half of next year will see monthly repayments rise to around £1,490 at the start of next year, up from £863 when they took out the mortgage two years ago.”
Changing market conditions have caused some lenders to change their product offerings.
“Major mortgage players are raising their sails as the wind changes. The dramatic overnight rise in market expectations of future interest rates has increased the cost of doing business and lenders are taking time off to reassess and re-rate,” Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, commented in a research note.
The development not only means mortgage rates will rise, but borrowers are likely to have fewer options. A number of smaller lenders have already reportedly halted sales of mortgage products over the past few months due to pressure from rising interest rates tightening the market.
This problem will only get worse if the big lenders stop the products, said Rob Gill, managing director of Altura Mortgage Finance.
“As borrowers will already be hit with significantly higher mortgage costs, the reduction in choice caused by larger lenders withdrawing from the market will only make the situation worse,” he said.
“We have seen smaller lenders withdraw from the market fairly regularly in recent months as they struggle to cope with rising interest rates. However, the move to larger lenders such as Virgin Money and Halifax interest rates for withdrawals is significant and is a major concern for mortgage borrowers.