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UK banks pull hundreds more home loan deals

The latest data reveals that hundreds of more home loan deals have been pulled by banks and building societies since the end of last week, while rates on new fixed mortgage deals are continuing to ratchet upward.

The continuing turmoil in the mortgage market is also prompting record numbers of people to take out loans of more than 35 years to make their monthly payments more affordable.

On Monday, the average rate on a new two-year fixed mortgage stood at 5.72%, according to figures from the financial data provider Moneyfacts, compared with 5.26% at the start of May.

That difference means someone taking out such a deal now faces paying £648 more a year than someone who signed up for the equivalent just over a month ago, based on a typical £200,000 mortgage.

The extra payment soars to more than £3,600 a year compared to someone who took out a typical two-year fix priced at just over 3% in May last year.

UK banks and building societies have been pulling swathes of mortgage deals from their books in the wake of a smaller-than-expected drop in the UK inflation rate to 8.7%, which led markets to bet that the Bank of England would raise interest rates well above 5% by the end of the year.

The number of residential mortgage deals available on 22 May – two days before the inflation data was released – stood at 5,385. That had fallen to 4,967 by Thursday last week and was down to 4,686 on Monday.

Meanwhile, rates on new fixed deals show no signs of ending their upwards march, dealing a blow to would-be homebuyers and those planning to switch to a new home loan product.

A standard mortgage used to run for 25 years, but experts are now reporting a growing trend for loans spread over longer terms as first-time buyers and others seek to make the soaring cost of loans more affordable.

A record 19% of all loans taken out by first-time buyers in March were for terms of 35 years or longer, with more than half taking a loan of more than 30 years, as house hunters seek to make the soaring cost of loans more affordable.

This is the highest proportion since records began in 2005. UK Finance is expected to say in a report the trade body is publishing this week and more than double the 9% rate in December 2021, when the Bank of England started raising interest rates from a low of 0.1%.

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