The mortgage market has shrunk after the tax-cuts unveiled by Chancellor Kwasi Kwarteng, but why and what are your home loan options?
The chancellor’s tax cuts and investment plans unsettled financial markets and sparked fresh concerns about inflation.
It also rattled mortgage lenders.
This is because the Bank of England’s tool for tackling inflation – its base interest rate – is rising fast and expected to double in the next months.
As a result, the cost of long-term borrowing is also going up.
How does that affect mortgages exactly?
The cost to mortgage lenders offering new deals is becoming much more expensive.
And there is panic in the market that a sudden rush by homebuyers to secure mortgages before lenders increase their own interest rates may see people taking on debt they cannot afford, especially when rates do climb higher.
A slump in the value of the pound against other currencies – particularly the US dollar – this week has heightened concerns.
Why has it suddenly become more difficult to find a mortgage?
Mortgage lenders including UK market leader Halifax have responded to all of this by withdrawing products.
HSBC, Santander, the Post Office, Skipton Building Society, Yorkshire Building Society, Virgin Money have all suspended mortgage offers for new customers, while other lenders are moving quickly to put up their rates.
Anyone now looking for a new home loan or hoping to remortgage is, therefore, facing, a dwindling number of deals in the market.
Decisions taken by the new chancellor and prime minister appear to have made an already difficult economic situation worse and this now being reflected across the markets.”
Darren Polson, head of mortgage operations at Aberdeen-based law firm Aberdein Considine, said: “After the challenges we all faced during the financial crisis and Covid it seems strange to call these unprecedented economic times.
“But with lenders pulling mortgage deals and some withdrawing from the market almost overnight it feels an apt description.
“Decisions taken by the new chancellor and prime minister appear to have made an already difficult economic situation worse and this is now being reflected across the markets.
“At this stage, it seems that if you already have an agreed mortgage deal you should be fine, but beyond that to say the situation is uncertain would be a severe understatement.”
What should those seeking a new mortgage or looking to remortgage do?
Mr Polson added: “With interest rates predicted to rise to 6% early next year, it’s no surprise mortgage lenders are concerned about the pricing of new deals right now.
“It is understandable that those either in the house buying process or beginning to look at buying are feeling a little apprehensive.
“On the positive side, lenders do have to lend to maintain their business and whilst none of us have a crystal ball, it is hoped this halt on lending from some lenders is only a short-term measure until things settle down.
“The UK government will be under immense pressure to change direction as soon as possible.
“In the meantime, there is no better time to be speaking to your independent mortgage adviser who will be on top of what is happening and can keep you informed of the latest news and the current deals available.
“The message is to stay calm and keep talking to your adviser.”
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