Mortgage Market Sees Rapid Deal Withdrawals Amid Economic Uncertainty
Mortgage lenders are pulling deals from the market at the most accelerated pace witnessed since the infamous mini-Budget under Liz Truss, as economic turmoil stemming from the Iran conflict intensifies. According to financial information platform Moneyfacts, nearly 500 homeowner mortgages have disappeared in mere days, with average mortgage rates now breezing past the critical five per cent threshold.
Unprecedented Withdrawal Rates and Soaring Fixed Rates
Moneyfacts reported on Wednesday that 472 residential mortgages, constituting 6.5 per cent of the total market, were withdrawn within a 48-hour period. This panic-driven response coincides with a sharp spike in swap rates, which serve as a primary benchmark for pricing fixed-rate mortgages and reflect market expectations for future interest rates over 2, 5, or 10-year terms.
The average two-year fixed mortgage rate surged to 5.01 per cent on Wednesday morning, a significant increase from 4.84 per cent recorded at the end of the previous week. Simultaneously, the five-year fixed rate escalated to 5.09 per cent, up from last week's 4.96 per cent.
Industry Reactions and Market Volatility
Omer Mehmet, managing director at Trinity Finance, commented, "High fives are the last thing borrowers will be giving lenders as rates climb above five per cent. To say events are moving at speed with no clear direction is probably an understatement right now."
Markets have begun to price in an environment where interest rates remain elevated for longer, driven by inflationary consequences linked to volatile oil prices. The UK's five-year gilt, which closely tracks the Bank of England's base rate, increased by 17 basis points to 4.16 per cent by midday on Wednesday. Meanwhile, the 10-year gilt yield, a key benchmark for the government's borrowing costs, spiked by seven basis points to 4.6 per cent.
Potential for Interest Rate Hikes and Lender Adjustments
Kathleen Brooks, research director at XTB, noted, "Although a rate hike from the BOE is not expected this year, there are only 5bps of cuts priced in by the interest rate futures market, so a hike cannot be ruled out if the oil price remains elevated for long."
TSB became the latest high street lender to increase its mortgage rates on Tuesday, implementing a 0.5 per cent across-the-board hike, following a 0.15 per cent increase on its fixed-rate residential and buy-to-let mortgages on Monday. Barclays also imposed a 0.1 per cent increase on rates for a selection of its products, including residential purchase and remortgage ranges, effective from Tuesday.
Building Societies React and Historical Context
A number of building societies, including Coventry Building Society, Yorkshire Building Society, and Nottingham Building Society, initiated the week by adjusting pricing on fixed deals. Cumberland Building Society withdrew products while repricing its mortgages.
Jack Tutton, director at SJ Mortgages, explained, "Lenders are petrified that history will repeat itself and the cost of borrowing increases sharply like it did in 2022, when Russia invaded Ukraine and the impact on energy prices that this had."
Oil Price Dynamics and Market Implications
The price of oil, which has served as the main benchmark of volatility throughout the conflict in the Middle East, has yet to reach the 2022 peak of nearly $130 per barrel. At the beginning of the week, Brent crude recorded its fastest one-day gain in six years, rising to $118, before relinquishing gains to trade around the $90 mark.
