Lenders withdraw hundreds of mortgages from sale after mini-budget sparks market turmoil
Banks and building societies have withdrawn hundreds of their mortgages from sale after the government’s mini-budget on Friday sparked massive market turmoil.
Three lenders - Virgin Money, Halifax and The Skipton Building Society - have so far pulled some of their products amid the uncertainty.
Despite the turmoil in the markets, Chancellor Kwasi Kwarteng said he is “confident” his tax-cutting strategy to drive economic growth will work.
On Tuesday, Virgin Money said: “Given market conditions we have temporarily withdrawn Virgin Money mortgage products for new business customers.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.”
Halifax also said it has temporarily withdrawn all mortgages that come with a fee.
The Skipton Building Society announced that, in order to “reprice”, it too had pulled its offers for new customers.
Rachel Springall, a finance expert at Moneyfacts.co.uk, said: “The upheaval in the mortgage market may cause frustration amongst both borrowers and brokers as they see deals disappear overnight.
“The market remains considerably volatile so it’s vital consumers seek independent advice to assess what their best options are right now.”
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Interest rates expected to rise
The decisions by lenders was taken after markets started predicting massive rises in interest rates this year and next year.
The Bank of England is expected to hike its base rate by another two percentage points by the end of the year, and rates could top 6% next year, according to market expectations.
A total drubbing of the pound on Monday even raised the prospect of an emergency rate hike from the Bank. However, in the end, Governor Andrew Bailey merely released a short statement.
In it he said that the Bank would change interest rates “by as much as needed” to get inflation back to its 2% target.
What would an interest rate increase mean for those with mortgages?
Higher interest rates may, in turn, lead to increased monthly mortgage payments.
Nearly four-fifths (78%) of mortgage borrowers have fixed rates, meaning they will not see the impact of any immediate base interest rate hike.
However, Neal Hudson, analyst at BuiltPlace, estimates that around 375,000 Britons will come off a fixed mortgage in the second quarter of next year, i.e. when markets think the base rate will hit 6%.
For a homeowner with a £140,000 mortgage, rates rising to 6% could mean monthly payments increasing by around £270, according to the Resolution Foundation.
What has the government said?
In talks with City investors in the wake of Friday’s mini-budget, Mr Kwarteng insisted he was committed to “fiscal discipline” and that he had a “credible plan” to start to bring down the UK debt.
He also emphasised the importance of the “supply side” reforms ministers will be setting out in the coming weeks, including his “Big Bang 2.0” reforms of the financial market regulations, in supporting growth.
“We are confident in our long-term strategy to drive economic growth through tax cuts and supply side reform. Supply side reforms are critical – increasing capacity brings down prices,” he said, according to a Treasury readout of the meeting.
“Cabinet ministers will set out more supply side measures over the coming weeks to make meaningful change. Right across government, departments have to be focused on this.
“As I said on Friday, every department will be a growth department.
“We are committed to fiscal discipline, and won’t re-open the spending review. We have a medium-term fiscal plan coming on November 23, alongside an OBR (Office for Budget Responsibility) forecast. That will be a credible plan to get debt to GDP falling.
“We have responded in the immediate term with an expansionary fiscal stance on energy because we had to. With two exogenous shocks – Covid-19 and Ukraine – we had to intervene. Our 70-year-high tax burden was also unsustainable.
“I’m confident that with our growth plan and the upcoming medium term fiscal plan – with close cooperation with the Bank – our approach will work.”
Labour has 'serious plan' for interest rates
Shadow Health Secretary Wes Streeting said millions across the country, including himself, are worried about their mortgage payments surging.
The opposition frontbencher told ITV News: “There's real world consequences for families. There are people struggling with their bills, they're worried about their mortgage interest rates going up."
Mr Streeting said Labour has a "serious plans to tackle the cost-of-living crisis, to get the crisis under control... bringing down inflation, bringing interest rates under control.”
Consumer Prices Index inflation is currently hovering at around 10%, and is expected to peak higher later this year.
The markets have been in turmoil since Chancellor Kwasi Kwarteng announced his and Prime Minister Liz Truss’s plan for the economy.
The pound briefly dipped to an all-time low against the dollar on Monday morning. Tuesday saw a slight recovery as sterling steadied in early trading in Asian markets.