UK banks and building societies have pulled almost 800 residential and buy-to-let mortgage deals in the past few days amid growing concerns over future interest rate rises.
In an echo of the crisis that engulfed the sector last autumn after the mini-budget that brought down Liz Truss, the number of residential mortgage deals has fallen by almost 7% in a week, according to figures from the financial data provider Moneyfacts.
The data, which will heap pressure on Rishi Sunak and further dent the prime minister’s prospects in next year’s general election, also shows that new fixed-term home loans are climbing, after last Wednesday’s inflation figures moved markets to bet that the Bank of England would raise the cost of borrowing to over 5% this year.
The number of residential mortgage deals was down from 5,385 on 22 May to 5,012 on Tuesday morning – a reduction of 373 products.
In the buy-to-let sector, the volatility has had an even bigger impact, with the number of new landlord mortgages available dropping by 405 or more than 14% over the same period, from 2,748 deals to 2,343.
Households looking for a new mortgage deal were warned to expect 5%-plus fixed-rate deals in the coming weeks after last Wednesday’s worse-than-expected inflation figures.
The new figures raise the prospect that the UK could be heading for a rerun of the rollercoaster period last autumn when Kwasi Kwarteng’s September mini-budget unleashed chaos in the financial markets, leading to thousands of mortgage deals being pulled and contributing to rises in the prices of many new fixes to above 6%.
They also add to the urgency of calls for the Bank of England and the government to tackle the stubbornly high inflation at the root of the rate rises, amid warnings from some economists that it could drive the UK economy into recession next year.
Paul Dales, the chief UK economist at the consultancy Capital Economics, said further interest rate rises and a contraction were needed to bring down inflation. “I don’t see how we lower wages growth and bring down inflationary pressures without a recession,” he said.
Financial markets are now pricing in four successive rate rises by the Bank of England, taking the central bank’s base rate from 4.5% to 5.5% by the end of the year, though Dales forecast a peak of 5.25% and a recession in the second half of this year.
James Murray, the shadow financial secretary to the Treasury, said: “The Conservatives’ 13 years of failure on the economy, including last year’s disastrous kamikaze budget, is being felt every month by millions of people through rising mortgage repayments, just as other costs are rising too. We need a new approach.”
Meanwhile, rates on new fixed deals are marching upwards again, having gradually fallen during the months after the mini-budget, dealing a blow to would-be homebuyers and those planning to switch to a new home-loan product.
Moneyfacts said the average rate on a new two-year fixed mortgage rate had crept up from 5.34% on 22 May to 5.38% on Tuesday morning. At the start of May the average was 5.26%.
The average rate of 5.38% is not far off the 5.43% that was reached at the start of October last year. Just a few months before that, in May 2022, the average rate stood at about 3%.
Similarly, the average new five-year fixed rate had nudged up from 5.01% on 22 May to 5.05% on Tuesday. At the beginning of this month it was 4.97%.
The data provider said that in terms of residential mortgage providers, those that had pulled some of their fixed-rate mortgage deals over the past few days included Bank of Ireland UK, Halifax and several building societies. Aldermore, Foundation Home Loans and the Tipton and Coseley building society are among those that have withdrawn their entire fixed-rate ranges.
However, at just over 5,000, the number of currently available standard mortgage deals is still more than double the 2,200 or so that were left on sale at the start of October last year, at the height of the Truss chaos.
Property prices have proved to be resilient over the last year, despite 12 consecutive interest rate rises, . Bucking predictions last year of a 10%-20% slump, the lender Halifax said average prices in April were 0.1% higher than the same month a year ago. Capital Economics expects an 11% fall over the next year after an increase in interest rates to 5.25%.
Rachel Springall, a finance expert at the data firm’s website Moneyfactscompare.co.uk, said people searching for a new home-loan deal “may well be concerned about the latest developments in the mortgage market”.
She said: “Product choice has started to fall and, as may be expected, average fixed mortgage rates are on the rise … Consumers looking to refinance will find rates about 5% on average for a fixed deal, compared with about 3% a year ago.”
The buy-to-let sector was particularly hard hit by last autumn’s turmoil in the money markets, with the number of available landlord deals dropping below 1,000 for a time. Springall said: “It will be a concerning echo of that period if choice plummets to such a low again.”
