Following the announcement of a “mini-budget” by UK’s finance Minister Kwasi Kwarteng last week, currency markets and the British pound have witnessed turmoil. This has pushed UK lenders Halifax, Skipton Building Society, and Virgin Money to cancel part of their mortgage offers to clients.
Lenders halt mortgage deals to customers
For instance, Skipton Building Society and Virgin Money temporarily halted their mortgage deals for new clients. In addition, Lloyds banking Group-owned Halifax expected to pause any mortgage offerings that offer low-interest rates.
A Virgin Money spokesperson stated that the move resulted from market conditions. On the other hand, a spokesperson of Halifax said that their decision was due to the considerable changes in lending pricing. According to Skipton Building society, they halted their mortgage offerings to reprice in response to the recent market turmoil.
Currency markets have been suppressed since Friday since Kwarteng’s declaration on Friday, which included considerable tax cuts and suggestions for a move to “trickle–down economics.” For instance, on Monday, the yield on the ten-year bond surged to highs never seen since the 2008 crisis, with the British pound plummeting to an all-time low vs. the dollar.
The market movements, which suggested the Bank of England (BoE) would need to keep raising interest rates to combat price inflation, heightened inflationary concerns. The BoE declared that it wouldn’t turn back from this since it wanted to get inflation down to around 2% and closely monitored events.
Pantheon Macroeconomics chief economists: 2-year fixed rate mortgage to increase by 6%
Mortgage providers and customers are becoming more concerned since markets have started pricing out of a base rate increase from the present level of 2.25% to as much as 6% for the following year. All loans and mortgages in the nation are measured against such a base rate.
Pantheon Macroeconomics’ UK chief economists Gabriella Dickens and Samuel Tombs said in a note:
The average quoted rate for a two-year fixed rate mortgage likely would rise to about 6% early next year, if the MPC [Monetary Policy Committee] increased Bank Rate as quickly as markets expect, 400bp higher than two years earlier.
Hargreaves Landsdown’s senior finance analyst Sarah Coles said lenders are changing their positions because of the market conditions. The dramatic future rate hike has increased business costs, and lenders are cautious to evaluate and reprice.
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