Amid the economic chaos caused by the announcement of the mini-budget by Chancellor Kwasi Kwarteng, almost half of all mortgage products were withdrawn by lenders.
According to data from the mortgage software platform Twenty7Tec, in September almost half of all mortgage products were withdrawn after interest rate rises and the economic fallout from the mini-budget.
At the start of September, Twenty7Tech had 13,634 property loans available on their platform. But by the end of the month only 7,356 of these were still at buyers’ disposal.
Amongst those lenders who withdrew some of their products last Monday was Lloyds Banking Group Plc, which is the biggest mortgage provider in the UK. Virgin Money UK Plc stopped offering mortgage products to new customers altogether.
Other big lenders, such as HSBC, Santander and Nationwide Building Society, followed suit.
Why Are Lenders Withdrawing Mortgage Products?
Because the Bank of England (BoE) has raised the base rates – also called interest rates – several times over the past months, mortgage rates have risen too. As a result many lenders have withdrawn some products to offer them with increased rates.
However, after the announcement of the mini-budget on 23 September, hundreds of mortgage products were withdrawn due to the economic uncertainty caused by the announcement.
The pound dropped to a record low on Monday after the mini-budget was revealed, sending the UK economy into a crisis. This has led to fears that the BoE will further raise the base rates, even though it only raised them from 1.75% to 2.25% on 22 September.
This uncertainty has caused many lenders to withdraw their mortgage products in order to reassess the market. Many of them, such as Nationwide, have announced that they will raise their mortgage rates across their product range.
House Price Growth Slows Down
Amidst the chaos and uncertainty caused by the mini-budget, Nationwide has released its latest House Price Index.
The figures show that there was no price increase last month in 10 of the 13 regions of the UK, which is the first time since July 2021. The annual growth rate has fallen to single figures and now stands at 9.5%, a 0.5% fall from August, with an average house price of £272,259.
The South West of England is still the strongest performing region, with an annual growth rate of 12.5%. However, even here the house price growth is slowing down.
The East Midlands have seen house prices rise, which means the annual growth rate in this region rose from 11.4% in the second quarter to 12.3% in Q3.
The capital continues to be the weakest performing region, with an annual growth rate of 6.7%. However, it did rise from 6% in the previous quarter.
There is still an imbalance between supply and demand on the housing market, which will keep house prices from falling, for the time being.
But with inflation still being high and interest rates rising, it is only a matter of time until buyer demand will falter enough to rebalance the market. Already, surveyors have reported a fall in new buyer enquiries, which indicates waning buyer demand.
Stamp Duty Cut Unlikely To Stop Slowdown
While the recently announced cut in Stamp Duty will bring down the costs of purchasing a new home slightly, it is unlikely to offset the other financial pressures.
Inflation is still high, which means the Bank of England will continue to raise interest rates to bring it under control. The latest rise in September brought it to 2.25%.
But experts predict that mortgage rates will hit 6% in 2023, which will make buying a house less affordable. Already many lenders offer almost 5% for a two-year fixed mortgage.
And due to the sharp rise in property prices in the past two years, deposits needed are also getting bigger.
Housing affordability is becoming more stretched. Deposit requirements remain a major barrier, with a 10% deposit on a typical first-time buyer property equivalent to almost 60% of annual gross earnings – an all-time high.Robert Gardener, Chief Economist at Nationwide
The economic fallout from the mini-budget, with the pound plummeting against the dollar, has spooked many sellers and buyers. The sentiment has changed in the past week, with many having lost confidence in the UK housing market over fears of a looming recession.
It seems therefore inevitable that the slowdown will eventually lead to a fall in house prices, especially if mortgage rates rise in line with predictions.
However, given the recent sharp price hikes, falling prices should not damage the market too much.
Average UK prices have risen by 23% since the start of the pandemic, so even if they declined 10% in 2023, this would take us back to where we were last summer.Tom Bill, Head of UK Residential Research at Knight Frank