Ben Kentish 10pm - 1am
HSBC, Santander and Nationwide increase and suspend mortgage rates as banks pull deals due to pound crisis
27 September 2022, 10:16 | Updated: 27 September 2022, 17:31
Banks continue to pull mortgage deals over fears the Bank of England will raise interest rates, with warnings repayments could rise by £800 and first time buyers face shelling out £1,100 a month on homes.
Listen to this article
Property provider Rightmove has said average monthly mortgage payments for new first-time buyers are currently £1,057, or 40% of an average gross salary.
But they warned bills will jump to £1,114 per month if lenders pass on the latest interest rate rise of 0.5%.
Halifax, Santander, and HSBC, three of the UK's biggest mortgage lenders, as well as Nationwide, Virgin Money and Skipton, have all taken the step of pulling some deals after analysts warned the base rate could surge to 6 per cent next spring following market turmoil caused by the government's mini budget.
The news comes after the pound plummeted to a record low of $1.03 in Far East trading overnight, after the Bank of England said it would wait until November before responding to the recent turbulence. It steadied today in early trading in Asian markets, climbing to $1.07 just before 6am.
Which lenders have axed deals?
Halifax has temporarily pulled deals that come with fees.
HSBC has removed new residential and buy-to-let products.
Santander has temporarily pulled some of its mortgage products for new customer.
Nationwide has increased mortgage rates for two, three, five, and 10-year fixed rates by between 0.9% and 1.2%.
Virgin Money has also pulled fixed deals for new customers
Skipton temporarily withdrew mortgage ranges for new customers due to the volatility in Sterling
Smaller lenders including Scottish Building Society, Darlington, and Legal & General's buy-to-let arm CHL Mortgages have withdrawn all their fixed rate mortgages. Bank of Ireland, Clydesdale Bank, Paragon, Leek United Building Society and The Nottingham for Intermediaries are also understood to have pulled fixed mortgages for new customers.
Markets believe that official borrowing costs will need to rise sharply to reverse the drop in the pound, which could lead to soaring mortgage rates for millions of homeowners.
Mortgage lenders temporarily withdrew their products as financial markets predicted the Bank would need to raise interest rates from 2.25% to 6% to restore confidence.
Nomura, the Japanese bank, forecast that the pound would end the year below parity against the dollar. Meanwhile Paul Donovan, chief economist at UBS global wealth management, said investors were inclined to see the Conservative party as a “doomsday cult”.
Halifax, the UK's largest mortgage lender, said it had withdrawn its mortgage products offering arrangement fees in return for lower interest rates, saying it was moving to a full-fee range.
"As a result of significant changes in mortgage market pricing we've seen over recent weeks, we're making some changes to our product range," a spokesperson for the bank said.
"There is no change to product rates, and we continue to offer fee-free options for borrowers at all product terms and LTV (loan-to-value) levels, but we've temporarily removed products that come with a fee."
Santander, in an email to brokers, said: "On Wednesday 28 September, we're temporarily removing all 60% and 85% LTV products from the new business range.
"The majority of our new business residential and Buy to Let fixed rates also will increase by up to 0.40% and product transfer fixed rates will increase by up to 0.30%."
Virgin Money said: "Given market conditions we have temporarily withdrawn Virgin Money mortgage products for new business customers.
"Existing applications already submitted will be processed as normal and we'll continue to offer our product transfer range for existing customers.
"We expect to launch a new product range later this week."
It was expected that the Bank of England might undertake an emergency interest rate rise, but Governor Andrew Bailey merely released a short statement in which he said the Bank would change interest rates "by as much as needed" to get inflation back to the 2% target.
An increase in the cost of borrowing would impact house prices, as the property market has been fuelled by cheap mortgage rates.
Speaking earlier this month, the director of Halifax mortgages, Kim Kinnaird, said: "House prices have so far proved to be resilient in the face of growing economic uncertainty."
She added: "Industry surveys point towards cooling expectations across the majority of UK regions, as buyer demand eases, and other forward-looking indicators also imply a likely slowdown in market activity.
“With house price to income affordability ratios already historically high, a more challenging period for house prices should be expected.”
Earlier this month, Sarah Coles, senior personal finance analyst at the investment firm Hargreaves Lansdown warned the rising rates and house prices coupled with high energy bills would "push property out of reach for desperate buyers".
Lewis Shaw, founder of broker Shaw Financial Services said that further interest rate rises would "feed into higher mortgage rates and, as always, it'll be the taxpayer left carrying the can".
Further rate rises next year will also coincide with more than a million homeowners coming to the end of their fixed-rate deal, meaning they will have to remortgage as interest rates are peaking.
Around 300,000 borrowers will reach the end of their fixed rate in each quarter of 2023, peaking at 375,000 between April and June, according to analyst Built Place.
Jiten Varsani, founder of FortyOne Money said: “I usually don't worry about such things, as it is what it is, but even I'm concerned about the current situation. It's nuts and I've never known anything like it.”
In a tweet, he featured a GIF from the movie The Big Short, the film that explores how a few traders predicted the collapse of the 2008 housing market crash over a year before it happened, and then bet against the housing market.
I usually don't worry about many things, as it is what it is.— Jiten Varsani (@JitenVarsani) September 26, 2022
But even I'm concerned about the current situation. pic.twitter.com/39HWZvO36a
Imran Hussain of Harmony Financial Services said: “Sadly this is just the start... The mortgage market was already hectic and now it's going haywire.”
Nicholas Mendes, of the mortgage broker John Charcol, said markets were so unpredictable that lenders were unable to price their products - a process which usually only involves forecasting economic conditions, including interest rates, two weeks in advance.
Mendes said it was “uncharted territory” for borrowers.