Mortgage mayhem sees lenders pull almost 150 more deals, but worst may still be to come

Britain’s mortgage mayhem rumbled on as nearly 150 more deals were pulled from the market, and brokers warned it will only get worse with many more withdrawals and higher prices on the way.

Today’s shock inflation reading is likely to lead to higher mortgage rates, as the Bank of England is expected to hike its own interest rate higher to slow down demand. But already this morning, lenders were pulling products amid fears of the potential interest rate outlook.

Gary Bush, financial adviser at MortgageShop.com, said: “What we all prayed for, didn’t come.

“The stubborn inflation figure is going to bring continued havoc to UK mortgage rates, starting tomorrow with a likely increase in the Bank of England base rate.”

The average two-year fixed mortgage rate is 6.15%, up from 6.07% and getting closer to the 6.67% peak reached last Autumn. The average five-year rate is up from 5.72% to 5.79%.

Rates are also up for buy-to-let deals, with two-year rates increasing to 6.44% and five-year rates to 6.31%.

Lenders continued to pull products, with 143 less products on the market as of this morning. But with most giving brokers time before they withdraw mortgage deals from the market, it’s likely that many more will pull their offerings by tomorrow morning.

Short-dated gilt yields, which lenders use to price mortgage rates, surged today after calming yesterday. The two-year gilt is currently yielding 5.06%, only slightly below the 15-year highs reached on Monday.

Rohit Kohli, operations director at The Mortgage Stop, said: “It’s fair to say that rates are going to continue to increase and unfortunately this morning’s inflation figures will have done nothing to calm the markets and instil confidence that the Bank of England or the government have control of the situation.”

The Bank of England will announce its latest interest rate decision tomorrow, with a rate rise seen as a certainty. For those on variable and tracker deals, that will instantly lead to higher monthly payments.

But the size of tomorrow’s hike appears to still be up in the air. After today’s inflation figures, economists predicted the Bank could opt for a half-point “jumbo hike” rather than the previously expected quarter-point rate rise.

Fixed-rate deals, meanwhile, will depend on the expected future path of interest rates.

But Kohli noted that markets could have a pessimistic interpretation of either option. He asked: “Will a significant rise in the base rate tomorrow be seen as panic by the Bank of England or, if they are more cautious, will it signal continued complacency about the whole situation?”