British bond and currency markets have been in turmoil since Finance Minister Kwasi Kwarteng announced his “mini-budget” on Friday.
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LONDON – UK credit institutions Virgin Money, Halifax and Skipton Building Society withdrew some mortgage deals to clients after turmoil in the UK bond markets.
Virgin Money and Skipton Building Society are temporarily pausing mortgage offerings for new customers, while Halifax, owned by Lloyds Banking Group, plans to discontinue paid mortgage products, which often offer lower interest rates.
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A Virgin Money spokesperson said this was due to “market conditions”, while Halifax attributed the move to “significant changes in mortgage market pricing”.
Skipton Building Society said it was pausing its products to “reprice following the recent market reaction”.
British bond and currency markets have been in turmoil since Finance Minister Kwasi Kwarteng unveiled his “mini-budget” on Friday, which includes significant tax cuts and a push towards a “trickle economy”. The yield on UK 10-year gilding rose to levels not seen since 2008 on Monday. British pound fell all-time low against the dollar.
Inflation fears were fueled by market movements that signaled that the Bank of England would have to continue raising interest rates to combat rising prices. central bank said will not hesitate as it aims to bring inflation back to 2% and was watching the developments closely.
Markets began pricing with a base rate rising from 2.25% now to 6% for next year, raising concerns among mortgage lenders and borrowers. This floor rate is a benchmark for all mortgage and loan types in the country.
“The average offered rate for a two-year fixed-rate mortgage will likely rise to about 6% early next year if the MPC is approved. [Monetary Policy Committee] Bank Rate increased as quickly as markets expected, 400 basis points higher than two years ago,” said Samuel Tombs, Chief UK economist for Macroeconomics at Pantheon, and his colleague, senior UK economist Gabriella Dickens, in a research note.
“Households that refinance a two-year fixed-rate mortgage in the first half of next year will see their monthly repayments increase from £863 when they bought the mortgage two years ago to around £1,490 early next year.”
Changing market conditions have caused some lenders to change their product offerings.
“The major mortgage players are setting sails after the wind has changed. A dramatic overnight rise in the market’s future interest rate expectations has increased the cost of doing business, and lenders are taking a break to reassess and reprice,” said Sarah Coles. The personal finance analyst at Hargreaves Lansdown commented in a research note.
The developments not only mean that mortgage prices will rise, but borrowers are also likely to have fewer options. A number of smaller lenders have reportedly halted sales of mortgage products in the past few months as the market has shrunk due to the pressures of rising rates.
Rob Gill, managing director of Altura Mortgage Finance, said this problem will only get worse as major lenders suspend products.
“While borrowers will already be affected by significantly higher mortgage costs, the reduction in selection caused by the withdrawal of larger lenders will only exacerbate the situation,” he said.
“We have seen a fairly regular withdrawal from the market of smaller lenders who have struggled to cope with rising interest rates in recent months. However, the transition to larger lenders such as Virgin Money and Halifax is significant and a major concern for mortgage borrowers.”
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