UK banks pull mortgage deals as plunge in pound sparks fear of rate hike

LONDON – Deals for house purchases are collapsing in Britain after lenders pulled mortgage offers as concerns rise that the Bank of England (BOE) will have to hike interest rates to support the pound.

The Guardian reported on Tuesday that nearly 300 mortgage deals have been pulled in the last 24 hours by banks and building societies, after a fall in the pound fuelled forecasts of a jump in interest rates to nearly 6 per cent.

Smaller lenders such as Kensington, Accord Mortgages and Hodge were among those to say they were withdrawing products on Tuesday. That follows the decision by Lloyds Banking Group – the UK’s biggest mortgage provider – on Monday to halt some offers, while Virgin Money UK temporarily stopped offering home loans to new customers.

Major firms weighed in later Tuesday. HSBC Holdings told brokers it was removing new mortgage products for the rest of the day while Nationwide Building Society announced that it was increasing rates across product ranges starting Wednesday. Banco Santander said it was removing some products and increasing rates on many others.

Jessica Anderson, a 33-year-old who works in publishing, was set to buy a house in Walthamstow, east London, with her husband until the seller pulled out last week.

“We’re in an uncertain position where we’re not sure whether it still stands,” she said, regarding the couple’s mortgage offer. “Since the approval there have been two interest rate increases.”

Traders are betting the BOE will raise its key interest rate to 5.9 per cent by September next year, compared with 0.1 per cent a year ago, sending home loan costs spiralling for the 1.8 million people who need to remortgage next year.

A series of unfunded tax cuts from new Chancellor of the Exchequer Kwasi Kwarteng has rocked the pound and UK government bonds, and forced the BOE to issue an emergency statement pledging to lift rates “as much as needed” to control inflation.

Analysts at Credit Suisse said in a note that house prices “could easily fall 10 per cent to 15 per cent.”

Some hopeful housebuyers have had their mortgage offers fall through, according to Loubie Vaughan, founder of estate agent FG Consultants. She said one buyer had £900,000 (S$1.39 million) in cash to buy a £1.4 million house in Camden, north London, but that the deal is now in doubt.

“I told him to sit tight and see how it plays out,” she said. “There’s no point running around like headless chickens when we don’t know what’s going to happen.”

Ms Vaughan added that she expects house prices to fall despite Mr Kwarteng cutting stamp duty, a tax on housing transactions, last week. Property Log, an extension that tracks home price changes on portal Rightmove, said Monday saw the biggest number of price cuts it’s recorded since it began tracking them more than four years ago.

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