Yahoo Finance Lenders pull hundreds of mortgages as economists warn of fresh house price falls
Lenders have pulled close to 800 mortgage deals from the market, as economists warn higher rates will lead to further house price falls.
Some 14 lenders have pulled close to 400 fixed-rate residential deals, with three lenders pulling their entire fixed range, according to analysts Moneyfacts.
The average interest rate for a residential fixed-rate mortgage has risen from 5.34pc to 5.38pc.
In the buy-to-let sector, 14pc of mortgage deals have vanished in just a week, with another 400 loans pulled. Average interest rates have risen from 5.58pc to 5.61pc for a two-year fix.
It follows official data published last week which showed inflation rose by 8.7pc – far higher than the 8.4pc rise the Bank of England had expected.
Rachel Springall, of Moneyfact, said average rates “are expected to keep climbing because of the ongoing concerns over future interest rate hikes”.
Landlords are particularly vulnerable to rising mortgage costs, which eat into yields. Around 735,000 properties will be lost from the rental market if rates hit 5pc, forcing landlords to sell up, analysts at Capital Economics said last week.
The economist group now forecasts mortgage rates to reach 6pc next year, with loan rates returning to peaks not seen since the fallout from Liz Truss’s mini-budget.
It said it had revised its forecast for central interest rates from 4.5pc to 5.25pc and said higher rates were unlikely to fall until August next year.
Average mortgage rates could peak at 5.7pc in early 2024, it said, adding a house price fall of 8pc was now more likely.
The economist warned rising rates would undermine the recent pick-up in mortgage approvals and lead to renewed drops in house prices.
Other economists fear interest rates could climb as high as 6pc to curb rampant inflation. The last time rates were this high was last autumn, following Liz Truss’s Budget. Before this, the last time rates were so high was before the financial crisis.
It echoes comments from Willem Buiter, Andrew Sentance and DeAnne Julius, who all worked for the Central Bank’s Monetary Policy Committee, who this weekend said steeper rate rises would need to be implemented this summer to stamp out inflation.
Mr Buiter said he anticipated a peak of “no less than 6pc”, adding: “They’re going to have to go significantly higher. There’s no way in which a 4.5pc policy rate will do the job.”
In July, when the Bank rate was 1.25pc and markets had priced in a peak of 3pc, Jon Cunliffe, the Bank’s Deputy Governor, said 5pc was the level at which mortgage borrowers and companies would run into debt distress.
Earlier this year, the Bank of England and the International Monetary Fund poured cold water on predictions of a serious downturn.
Economists now predict Britain could fall into recession in the second half of the year if market expectations remain throughout the summer.
Last week Jeremy Hunt said he was comfortable with Britain falling into recession if it resulted in inflation falling. Speaking to Sky News, he said: “In the end, inflation is a source of instability.
“If we want to have prosperity, to grow the economy, to reduce the risk of recession, we have to support the Bank of England in the difficult decisions that they take.”
The Chancellor said he was committed to the Government’s target to halve inflation. Speaking at the Wall Street Journal CEO Council summit on Thursday, he said: “It is still absolutely deliverable, but we have to stick to the plan. We have to strain every sinew to make sure we deliver it.”
