by Britain’s housing market has been rocked by the UK government’s costly budget as retail banks cut mortgage rates in anticipation of more expensive products, sparking fears of a fall in house prices.
Homebuyers are panicking after the Bank of England said it would not hesitate to raise its key interest rate in response to an expected government borrowing glut that many see as further fueling high inflation.
“It’s been a dismal week for the mortgage market,” Sarah Coles, personal finance analyst at broker Hargreaves Lansdown, told AFP.
Mortgage providers, which offer home loans based on the central bank’s rate, have axed around 40% of products available from the budget on September 23, according to data provider Moneyfacts.
This equates to more than 1,600 mortgage rates offered over a set period of time.
Coles said “the market struggled to function normally” as the pound hit a record low against the dollar following the economic plan announced by the government of new prime minister Liz Truss.
The central bank responded by launching extraordinary purchases of long-term UK government bonds as rising yields put pension funds at risk of collapse.
“Lenders have withdrawn (mortgage) rates for new customers while they wait for the dust to settle,” Coles said.
“Once things feel more functional, they will come back but at a higher rate.”
Major British bank Barclays said that “due to high demand” it had “withdrawn a small number of mortgage products from sale to new customers”.
For some time, the average mortgage rate hovered around two percent for a fix lasting between two and five years, according to Moneyfacts.
However, these same mortgage deals are now approaching 5%, more than doubling your monthly repayment costs.
Tom Beale, head of UK housing research at Knight Frank, told AFP that mortgage holders could find themselves paying extra “hundreds of pounds a month, which they will have to find”, adding to the cost of living crisis. .
Abolishing mortgage covenants “is a bitter pill to swallow for those looking to move and those with fixed terms to expire,” said Tim Bannister, director of online property firm Rightmove.
“And it will have an impact on shoppers’ budgets, especially those that were already stretched thin.”
Richard Donnell, chief executive of online property group Zoopla, said rising mortgage rates had “been brewing for some time”.
The Bank of England in less than a year raised its interest rate to 2.25% from a record low of 0.1% in a bid to reduce inflation that was at a decade high.
Experts predict the BoE rate will peak near 6% in the first half of next year. Ahead of the budget, the market consensus forecast was for a top of four percent.
Analysts meanwhile predict that UK house prices are headed for a prolonged slump after surging in recent years as demand outstrips supply.
The average UK house price rose by 9.5% in September compared to a year earlier, mortgage provider Nationwide revealed on Friday.
However, prices were flat last month compared to August.
“The pause in house prices in September was little surprise given the growing downward pressure on demand from rising mortgage rates,” said Capital Economics analyst Andrew Wishart.
“This marks the start of the most significant house price correction since 2007,” when the global financial crisis began to emerge.
In his budget, Finance Minister Kwasi Kwarteng removed the point at which tax is levied on house purchases — a benefit that has seemingly been wiped out by the upturn in mortgage rates.
