Mortgage deals withdrawn in record numbers over rate rise fears

Lenders withdrew a record number of mortgage products overnight, according to analysts, as they grappled with the prospect of rising interest rates.

Moneyfacts, a financial information service, said that 935 mortgage products, around a quarter of the total, were taken off the shelf.

Interest rates are expected to rise sharply following the government's tax-cutting mini-budget on Friday.

Economists are predicting that could lead to a 10-15% drop in house prices.

The cost of government borrowing has risen sharply since Friday and the Bank of England has signalled it will raise interest rates at its next meeting in November. That in turn will raise the cost of borrowing for banks and building societies offering mortgages.

As a result lenders are withdrawing mortgage deals in order to re-price them.

Moneyfacts said the fall in mortgage products on offer was the biggest daily drop it has ever recorded. It was double the previous biggest drop, which occurred at the height of the Covid pandemic.

A total of 2,661 mortgage products are still available - but that is half the number that were on sale at the start of December last year when interest rates started to rise.

Brokers are reassuring those who already have a mortgage, or an agreement for a new mortgage, that they will be unaffected for the time being. However, when they come to remortgage, they are likely to find monthly repayments have become a lot more expensive.

'I'm worried I'll lose the house'

When Usman Ahmad, his wife and two children moved into their house four years ago they thought it would be their "forever home". But he is worried that higher interest rates may mean they can no longer afford to stay there.

When the family bought their house in Manchester in 2018, they fixed the mortgage at 2.05% for five years with monthly payments of £927, Mr Ahmad said.

Usman, a 33-year-old self-employed courier, said if he took out a fixed rate mortgage today he would be facing monthly payments of more than £1,250 a month.

"I'm thinking if that's now, what are the rates going to be like in nine months' time when I have to take out a new deal?"

On top of rising energy and food prices, the higher borrowing cost could be the last straw, he said.

"I'm worried about defaulting on the mortgage and losing the house," Usman said.

'Keep calm'

Rachel Springall, from Moneyfacts, said: "Borrowers would be wise to keep calm over the current volatility in the mortgage market and seek the advice from a independent broker. Various lenders have been very vocal that their decision to withdraw products is a temporary measure, amid the uncertainty over interest rates.

"Those looking to remortgage may find they have more equity in their home amid rising house prices, but first-time buyers may be struggling to find a property they can afford."

However, mortgage brokers are reporting a high number of calls from buyers hoping to lock in deals as soon as possible. They are warning that if the rates on offer climb too high buyers could pull out.

Ray Boulger, at mortgage adviser John Charcol, told the BBC that rising rates would have a big impact on the ability of people to buy, and would deter some people from buying at all.

"A key factor in house prices is how much people could afford on their monthly mortgage," he said.

Investment bank Credit Suisse has published analysis predicting that "house prices could easily fall 10%- 15%".

The house price "correction" would be gradual, over the next 18 months approximately, Credit Suisse added, as most people have fixed-rate mortgages that don't need to be renewed immediately.

Andrew Wishart, senior property economist at Capital Economics, also predicted a sharp fall in house prices of up to 15%.

"The rise in market interest rates that has already happened will push up mortgage rates to at least 6% and reduce the size of loans that lenders can offer," he wrote.

"The resulting drop in buying power makes a significant drop in house prices inevitable."