Soaring bond yields set to lift UK mortgage rates [Coventry Building Society mention]

[dutchman]

Mini-Budget statement compounds earlier Bank of England rate rise



Mortgage borrowers will face a surge in refinancing costs next week after the chancellor’s mini-Budget sent government bond yields soaring, compounding the effect of yesterday’s Bank of England rate rise, brokers warned.

Bond traders responded to Kwasi Kwarteng’s tax and spending plans on Friday by sending two-year gilt yields up 36 basis points to 3.87 per cent and those on 10-year gilts up 23 basis points to 3.72 per cent.

Ray Boulger, senior mortgage technical manager at broker John Charcol, said the bond moves would have “a big impact” on the mortgage market. Shifts in gilts typically feed through into swap rates, which lenders use to guide their mortgage pricing decisions.

On Friday, Boulger warned colleagues to nail down as soon as possible any fixed-rate deals that were pending for clients.

“I can see some lenders either pulling their deals or increasing their rates as early as today,” he said. Some lenders might even withdraw their rate deals for a few days, he added, as they wait for the bond market to settle.

The moves will intensify the pressures already bearing down on borrowers this week, after some lenders raised their home loan rates and withdrew deals ahead of a 0.5 percentage point rise in the BoE’s main interest rate.

Santander raised fixed rates by up to 0.8 percentage points on its mortgages on Wednesday, while NatWest added 0.35 percentage points to its two- and five-year fixed-rate deals for purchases, and 0.2 percentage points on the same deals for remortgage customers.

Platform, the arm of the Co-operative Bank for lending via mortgage brokers, withdrew all of its rate deals on Thursday. Coventry Building Society said it would pull all of its deals available to borrowers with a loan-to-value ratio under 85 per cent on Friday, and all of its three-year fixed-rate deals.

Bond market pricing is not the only reason for lenders to raise interest rates and cull deals. Andrew Montlake, managing director at broker Coreco, said lenders who were concerned about their ability to respond to a surge in customers often used rates to choke off demand.

“They can’t afford to be left at the top of the ‘best buy’ charts. They have to reprice otherwise they just get inundated and can’t protect their service levels,” he said. In the current environment, he added, lenders were likely to put their prices up by substantial margins of about 0.5 percentage points.

“We’re in for a bumpy week,” said Simon Gammon, managing partner at broker Knight Frank Finance. “If the last few months are anything to go by, the notice that mortgage brokers have been given that a rate is being withdrawn is hours, not days.”

A rise of half a percentage point on the current average standard variable rate — typically the most expensive type of mortgage lending — of 5.4 per cent would add about £1,443 to total repayments over two years, according to finance site Moneyfacts.

Three-quarters (74 per cent) of mortgage borrowers are protected from the immediate consequences of rate rises by being on a fixed-rate deal, according to the Financial Conduct Authority, though half of these are due to expire within the next two years.

“Many of the biggest lenders’ cheapest deals are well over 4 per cent but it does not seem like it will be long before they are closer to 5 per cent,” said Aaron Strutt, technical director at broker Trinity Financial.

[dutchman]

More mortgage lenders pull deals on rate rise fears



Santander and Yorkshire Building Society have now suspended mortgage deals after a fall in the pound fuelled forecasts of rising interest rates.

A number of lenders have temporarily halted mortgage offers for new customers.

Meanwhile, Nationwide said it will lift rates on a range of fixed mortgages.

On Tuesday, the Bank of England's chief economist said that action would have to be taken - an indication that interest rates could rise sharply.

In a speech, Huw Pill said: "I think it is hard not to draw the conclusion that all this will require a significant monetary policy response."

Economists now expect interest rates to more than double to 5.8% by April, from the current level of 2.25%. Interest rates had previously been forecast to hit 4% by next May.

Lenders that are suspending mortgage offers for new customers include HSBC, Santander, Post Office, Skipton Building Society and Virgin Money.

Lucian Cook, head of residential research at estate agency Savills, said fixed-rate mortgages were "incredibly difficult to price at the moment" because there is a lack of certainty over interest rates.

The number of residential mortgages on offer by lenders fell to 3,596 on Tuesday, compared with 3,961 deals on Friday when the government announced a mini-budget, according to financial information firm Moneyfacts.

Julie-Ann Haines, chief executive at Principality Building Society, said lenders had to "stress-test" mortgages to make sure that if the Bank of England base rates go up customers can still afford their monthly payments.

She said the reason mortgage rates were going up quite quickly in recent months was because banks and building societies have to be able to make a margin.

Economists began forecasting a hike in interest rates when the pound plunged against the dollar on Monday.

This came after Chancellor Kwasi Kwarteng pledged more tax cuts on top of a £45bn package he had already announced at a "mini-budget" on Friday.

The Bank of England issued a statement on Monday saying that it would "not hesitate" to raise interest rates after the pound hit record lows.

Overnight, the pound stabilised at $1.08 but is still at its lowest level against the dollar for 37 years.

[rebbonk]

Truss and Kwarteng couldn't be trusted to run a whelk store profitably.

[dutchman]

A middle-aged friend with health-issues recently took out a first-time mortgage.

I couldn't think of a worse time myself but I didn't say anything.

[rebbonk]

A friend of mine has been talking about various forms of equity release. I suspect that the last few days will have cost him heavily.

I have a lot of money tied up in property bonds due to mature next spring. The clowns in office have likely cost me a lot of money! - I won't actually lose money, but I won't make as much as I was expecting.