13 June 2023 – Following the release of new inflation figures and the recent rise of interest rates, more and more lenders withdraw mortgage deals from the market, with mortgages for new customers becoming increasingly scarce.
When the Office for National Statistics released their latest figures regarding inflation last month, many experts were surprised. While core inflation did go down, the drop was much less than expected.
In response, the Bank of England raised the base rate to 4.5% in an attempt to get inflation under control. Not long after, lenders started to withdraw mortgage offers from the market and raise mortgage rates.
Soon hundreds of mortgage deals were pulled amidst worry that interest rates will rise further than originally expected.
Mortgage Deals Are Removed At Short Notice
Last week one of the biggest UK lenders, HSBC, has withdrawn all its mortgage products for new customers with only a few hours’ notice. It was suggested that the high number of applications the lender received were the reason for the sudden withdrawal.
Unlike other lenders, HSBC did not increase their rates for a week, which prompted many would-be borrowers to apply for a mortgage with them. The highstreet bank’s comments suggest it was a cautionary step.
To ensure that we can stay within our operational capacity and meet our customer service commitments, we occasionally need to limit the amount of new business we can take each day.
HSBC on Withdrawal of Mortgage Offers
Several other lenders followed HSBC’s example, including Saffron Building Society and Clydesdayle Bank, which is part of the Virgin Money Group.
It is widely expected that when these lenders re-launch their fixed-rate mortgage deals, the rates will be much higher.
Already lenders who have re-priced their fixed-rate deals have priced them higher than the swap rates. These are the rates banks use to lend money to each other.
Mini-Budget To Blame For Level Of Mortgage Rates
According to the Labour Party, Liz Truss and Kwasi Kwarteng’s ill-fated mini-budget last September is to blame for these high mortgage rates.
The party’s analysis shows that homeowners on average now pay £7,000 more per year in interest payments due to the sharp rise in interest rates. This equates to £223 a week.
This Tory mortgage penalty has increased the cost of homeownership by thousands of pounds a year, causing huge worry for families, while putting the prospect of owning a home further out of reach for many others.
Pat McFadden, Shadow Chief Secretary to the Treasury
Since the mini-budget, Labour says, on average homeowners pay £150 more per week.
The analysis shows further that mortgage rates for a 75% loan-to-value mortgage have risen on average by a third from April 2021 to April 2023. Back in 2021, the rate stood at 1.49%, two years later the same mortgage had a rate of 4.63%.
But it’s not just homeowners who suffer from the rising mortgage rates.
Young People Stay Longer With Mum And Dad
High mortgage costs combined with sharply increased house prices make it difficult for first-time buyers to afford their first home.
Sky-high rents make it almost impossible for young people to save up for a deposit, especially during a cost-of-living crisis.
That’s why many young people decide to stay on with mum and dad for longer to save on rent and save up for a deposit. According to research by estate agent Hamptons, the number of first-time renters is declining.
In 2015, 6.1% of renters were first-timers, which equated to 71,860 households across England. But this figure has dropped to 43,280 households or 4.6% in the first five months of 2023.
Some young people forgo renting altogether. Instead, they stay in their childhood home until they are able to buy their first home.
This is not surprising, given that, according to Hamptons, the average rent on a newly-let home has risen by 9.1% between May 2022 and May 2023.
But it’s not the same everywhere across England; there is a clear north-south divide. While in the North the number of young people leaving their mum and dad’s home to move into a rental property rose in the past year, in the South the number has declined.
In 2023 so far, 5.4% of all renters in the North of England are young people moving out of their family home. In comparison, in the South of England it’s only 3.7%, emphasising the difference in rent prices between the north and south of the country.
Delaying moving out of the family home gives first-time buyers a chance to get onto the property ladder, despite increased house prices, high living costs and rising costs for mortgage deals.
With average rental prices having passed £1,000 per calendar month for the first time, young people can save £12,290 this year by staying with mum and dad. This might be the only way for some would-be first-time buyers to afford a home in the current climate.
