Almost 800 mortgage deals were pulled from the market at the end of May after inflation levels remained higher than expected. The BBC reports that this amounts to 10% of all mortgage products, including residential and buy-to-let mortgages.
Average mortgage rates for both two and five year fixed deals have risen in response to the Bank of England’s (BoE) decision to raise interest rates to 5%. There are concerns that the interest rate will reach 5.5% by the end of the year.
Rachel Springall, a finance expert at Moneyfacts, said: “Borrowers searching for a new deal may well be concerned about the latest developments in the mortgage market.”
She added: Over the past few days, we have seen a few lenders withdraw selected fixed products, with some pulling out of the market, at least temporarily. Product choice has started to fall, and as may be expected, average fixed mortgage rates are on the rise.”
One of the UK’s leading ratings agencies, Moody’s, has predicted that higher mortgage rates will cause Britain to fall into recession this year as homeowners have to make overstretched budgets go even further.
The Telegraph reports that BoE policy maker Catherine Mann additionally warned that higher inflation rates would affect the UK more deeply than other countries, because it was proving more persistent and difficult to combat. This will cause extra volatility in the financial markets, and make a recession more likely.
The prevalence of fixed rate and short term mortgages in the UK will exacerbate the problem according to Moody’s. In the USA, fixed term mortgage deals last for much longer than in the UK, for an average of 30 years. Meanwhile, Germany typically fixes mortgage interest rates for 10 years.
A spokesperson for the ratings agency commented: “The UK’s relatively short-dated mortgage market means that around half of outstanding mortgages have a floating rate or will need to be refinanced at higher rates this year, which will reduce household disposable income.”
The volume of residential sales in the UK has fallen to the lowest levels since before the pandemic, and property prices have also fallen in response to the reduced affordability of mortgages.
Charlie Bryant, CEO of Zoopla, said: “What we’ve seen over the course of the last few months is that if rates settle around the 4-4.5% level, that is affordable for most buyers. If you look at the rates that came in shortly after the mini-budget at the back end of last year, we saw those rates going up to 5-5.5%, which brought in those faster house price falls.”
He added: “We do need to see what happens following the inflation data at the beginning of last week, which saw swap rates increase, which may lead mortgage lenders to push rates up a little bit and that may have more of an impact again.”
Anyone who is concerned about being able to meet their mortgage repayments is advised to contact their lender to discuss the situation, rather than to miss payments or fall into arrears.
If you are looking for a mortgage broker for adverse credit, please contact us today.
Your home may be repossessed if you do not keep up with your mortgage repayments.
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