Market chaos forces UK lenders to withdraw mortgage products

Estate agent sales and letting signs are attached to railings outside an apartment building in south London, Britain September 23, 2021. REUTERS/Hannah McKay

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LONDON, Sept 26 (Reuters) – Turmoil in Britain’s financial markets on Monday forced mortgage lenders to temporarily withdraw products and reprice products for new customers, a concrete consequence of market volatility sparked by the government’s mini-budget. Finance Minister Kwasi Kwarteng last week.

Brokers said the moves were likely just the start of a big shift in the UK mortgage market.

The nation’s largest mortgage lender, Halifax, said it was withdrawing its paying mortgage products – where borrowers could pay an arrangement fee in exchange for a lower interest rate – and switching to a full range free of charge.

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Virgin Money and Skipton Building Society have temporarily withdrawn their entire ranges, with the former aiming for a relaunch later in the week, according to emails sent to brokers seen by Reuters.

Kwarteng sent the pound and government bonds into a tailspin on Friday with a so-called mini-budget designed to grow the economy by funding tax cuts with huge increases in government borrowing.

“Due to significant changes in the cost of financing, we are making some changes to our product line,” a Halifax spokesperson said.

The yield on five-year UK government bonds – a crucial benchmark for lenders’ mortgage funding – soared 96 basis points on Monday and Friday combined, the biggest increase in borrowing costs since Refinitiv’s records began in 1987.

“Following last week’s (Bank of England) meeting and the government’s subsequent mini-budget, we continue to see the market response unfold,” Skipton Building Society said in an email to brokers.

“In response, we will be temporarily withdrawing our new commercial product line with immediate effect.”

Virgin Money said its withdrawal of mortgage products for new customers would take place at 8 p.m. (1900 GMT).

“We continue to monitor the situation closely and are currently planning to relaunch products for new customers towards the end of the week,” Virgin Money said.

Halifax, part of Lloyds Banking Group (LLOY.L), said there were no changes to the pricing of its products and it continued to offer no-cost options on all product terms and at all loan-to-value levels.

Brokers said other lenders were certain to make big changes to their mortgage offerings.

“Uncertainty around the risk of an emergency rate hike is likely to see other lenders pull product or raise rates significantly until they know how well this all plays out,” he said. said Jamie Lennox, director of Dimora Mortgages, a broker.

Others said mortgage rates were likely to skyrocket, with the Bank of England saying on Thursday it would not hesitate to change interest rates “as much as necessary” to bring inflation back to his goal.

“This will mean higher mortgage rates and, as always, the taxpayer will bear the brunt,” said Lewis Shaw, founder of brokerage Shaw Financial Services.

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Reporting by Andy Bruce Editing by William James and Mark Potter

Our standards: The Thomson Reuters Trust Principles.

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