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  • Writer's pictureInvestment Synergy Team

Banks turn the screw with a weekend of worse mortgage rates

George Nixon - Money Reporter Henry Zeffman, June 5th 2023 The Times

More than 100,000 households face a squeeze on their finances this month as lenders increase rates amid escalating turbulence in Britain’s mortgage market.

In a rare move, the country’s third- largest lender, Santander, made changes over the weekend and TSB withdrew all its ten-year fixed-rate deals on Friday with just two and a half hours’ notice. Coventry Building Society will increase all its two, three and five-year deals tomorrow.

The action is being driven by worse-than-expected inflation figures last month, which fell to 8.7 per cent despite hopes they would drop further. The difficulties in the mortgage market will heighten fears in government that cost of living pressures are not reducing for enough Britons, even as inflation falls.

The number of mortgage deals has hit its lowest level since March, according to the financial data analyst Moneyfacts. The average two-year fixed-rate mortgage has risen from 5.34 per cent to 5.64 per cent over the same period, adding £444 a year to repayments on a £200,000 mortgage in two weeks.

Other lenders including Barclays, HSBC, NatWest, Virgin Money and the Nationwide, Skipton and Yorkshire building societies have all increased fixed-rate deals over the past week by up to 0.85 percentage points.

About three quarters of the UK’s 20 biggest mortgage lenders have increased mortgage rates since turbulence in financial markets began on May 24, and Skipton has made all its five-year mortgage deals that are below 90 per cent loan-to-value available to existing borrowers only.

About 116,000 households are coming off fixed-rate deals this month, according to the Financial Conduct Authority, meaning that if they cannot secure new rates and have to move on to a standard variable rate they could face soaring costs.

A further 640,000 people have deals that come to an end in the second half of this year, according to the Office for National Statistics (ONS)

There are especially large numbers reaching the end of fixed- rate mortgages this year because they rushed to buy properties in an effort to take advantage of the Covid stamp duty holiday, which came to a close in June 2021.

A fortnight ago the ONS reported that inflation had fallen to 8.7 per cent in April, the first time it had been in single figures since last summer. But the reduction has been slower than expected, fuelling predictions that the Bank of England will increase interest rates again.

Rishi Sunak has made halving inflation over this year the first of his five pledges. He needs it to fall to 5.2 per cent to meet the pledge. The prime minister is said to be considering cutting national insurance or income tax by up to 2p before next year’s general election. Many economists believe that tax cuts can fuel inflation, meaning that any cut is likely to be reliant on inflation having fallen. As chancellor in March last year, Sunak announced a 1p income tax cut to come into effect in 2024, but Hunt scrapped the plan after he became chancellor.

Addressing the rise in mortgage rates, Lewis Shaw, owner of the mortgage broker Riverside Mortgages, said: “I certainly did not expect to see the cheapest deals from Barclays starting with a 5. The worry is that it sets off a self-fulfilling spiral again where customers start diving in to try and secure deals, lenders get swamped and their only way to turn off the tap is to increase rates, and on it goes.”

Bank of England figures last week showed that mortgage approvals fell from 51,500 in March to 48,700, while homeowners repaid more on existing mortgages than they borrowed in new ones for the first time since the Bank’s records began in 1993. Overall, mortgage approvals are down 38 per cent in the first four months of this year against the same period last year.

The consultancy Capital Economics expects the number of mortgage approvals to fall to 540,000 this year, the fewest since the 523,316 that were approved in 2008 during the last financial crisis. Nationwide Building Society also found that house prices fell 3.4 per cent between May 2022 and the same month this year, the largest fall since 2009.

Investment Synergy - and we thought it couldn't get any worse !

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