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UK Mortgage Deals on the Brink of Crisis as Interest Rate Rise

UK banks and building societies have pulled almost 800 residential and buy-to-let mortgage deals in the past few days amid growing concerns over future interest rate rises.

In an echo of the crisis that engulfed the sector last autumn after the mini-budget that brought down Liz Truss, the number of residential mortgage deals has fallen by almost 7% in a week, according to figures from the financial data provider Moneyfacts.

The data, which will heap pressure on Rishi Sunak and further dent the prime minister’s prospects in next year’s general election, also shows that new fixed-term home loans are climbing after last Wednesday’s inflation figures moved markets to bet that the Bank of England would raise the cost of borrowing to over 5% this year.

The number of residential mortgage deals was down from 5,385 on 22 May to 5,012 on Tuesday morning – a reduction of 373 products.

In the buy-to-let sector, the volatility has had an even more significant impact, with the number of new landlord mortgages available dropping by 405 or more than 14% over the same period, from 2,748 deals to 2,343.

Households looking for a new mortgage deal were warned to expect 5%-plus fixed-rate deals in the coming weeks after last Wednesday’s worse-than-expected inflation figures.

The new figures raise the prospect that the UK could be heading for a rerun of the rollercoaster period last autumn when Kwasi Kwarteng’s September mini-budget unleashed chaos in the financial markets, leading to thousands of mortgage deals being pulled and contributing to rises in the prices of many new fixes to above 6%.

They also add to the urgency of calls for the Bank of England and the government to tackle the stubbornly high inflation at the root of the rate rises, amid warnings from some economists that it could drive the UK economy into recession next year.

Paul Dales, the chief UK economist at the consultancy Capital Economics, said further interest rate rises and a contraction was needed to bring down inflation. “I don’t see how we lower wages growth and bring down inflationary pressures without a recession,” he said.

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