U.k. lenders pull mortgage deals after market chaos

The British bond and currency markets have been in turmoil since Finance Minister Kwasi Kwarteng announced his ‘mini-budget’ on Friday, which included significant tax cuts

U.K. lenders Virgin Money, Halifax and Skipton Building Society pulled some of their mortgage deals to customers after the tumult in British bond markets.

Virgin Money and Skipton Building Society temporarily paused mortgage offers for new customers, while Halifax — owned by the Lloyds Banking Group — is planning to halt any mortgage products with fees where lower interest rates are usually offered.

A spokesperson for Virgin Money said this was due to ‘market conditions,’ while Halifax attributed the move to ‘significant changes in mortgage market pricing.’

Skipton Building Society said they had paused their products in order to ‘reprice following the market response over recent days.’

The British bond and currency markets have been in turmoil since Finance Minister Kwasi Kwarteng announced his ‘mini-budget’ on Friday, which included significant tax cuts and a push toward ‘trickle-down economics.’ The yield on the U.K. 10-year gilt soared to levels not seen since 2008 on Monday, while the British pound plummeted to an all-time low against the dollar.

Inflation fears were accelerated by the market moves, which indicated that the Bank of England would have to continue to hike interest rates to fight rising prices. The central bank said it would not shy away from this as it aimed to bring inflation back to 2% and was watching developments closely.

Markets have begun pricing in a base rate rise to as high as 6% for next year, from 2.25% currently, raising concerns among mortgage lenders and borrowers. This base rate is the benchmark for all sorts of mortgages and loans in the country.

The average quoted rate for a two-year fixed rate mortgage likely would rise to about 6% early next year, if the MPC (Monetary Policy Committee) increased Bank Rate as quickly as markets expect, 400bp higher than two years earlier, Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics and his colleague Gabriella Dickens, senior U.K. economist, said in a research note.

Households refinancing a two-year fixed rate mortgage in the first half of next year will see monthly repayments jump to about £1,490 early next year, from £863 when they took on the mortgage two years prior, Dickens said.

The changing market conditions have led some lenders to change their product offerings.

Major mortgage players are hauling in the sails after the wind changed. The dramatic overnight hike in market expectations of future rates has ramped up the cost of doing business, and lenders are taking a break to reassess and reprice, Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, commented in a research note.