UK lenders struggle to keep up with demand as mortgage costs soar

UK lenders are withdrawing mortgage products to avoid being overwhelmed by growing demand from customers looking to fix their payments amid record high mortgage rates.
According to Tony Davis, head of mortgage products at Metro Bank Plc, some borrowers, usually with larger mortgages, are even paying penalties to get out of their existing loans so they can get lower repayments.
Home sales have fallen sharply in recent months as many workers have returned to the office, making moving to the countryside less attractive. Lenders have focused on existing homeowners, 3.1 million of whom are expected to see their fixed-rate deals expire this year or next.
This competition has squeezed margins, which means reimbursements for a new contract are often less than an owner’s existing bills. As inflation hits its highest level in four decades, borrowers are rushing to take advantage of these deals before interest rates rise.
There are fewer than 4,400 residential mortgage products currently available in the UK, down around 3.5% from the start of the month, according to analysis by Moneyfacts Group Plc for Bloomberg News. As of July last year, over 4,500 options were available.
Lenders “know that if they’re left at the top of the Best Buy tables, they’ll be inundated,” said Andrew Montlake, managing director of mortgage broker Coreco. “Those that are flooded can often withdraw all of their rates in a certain area to give their operations and underwriters time to catch up before returning to the market.”
Other vendors are pulling products because the funding they secured has now been advanced to customers, meaning they have to go back to markets to raise new funding at more expensive levels, according to director Kevin Purvey. of the distribution of mortgages to the Coventry Building Society.
“It’s usually the smaller lenders who end up getting more business than they can handle,” he said.
Santander UK, Bank of Ireland UK and Aldermore are among providers that have withdrawn at least one of their mortgage products this month, according to Moneyfacts. Aldermore said it had changed part of its range to “help support our service delivery and ensure we provide the right level of service to all of our customers”.
Demand is so strong that Santander UK has extended the validity of mortgage offers and extended weekday opening hours. “We have had to be continually responsive to competitor movements, resource management and base rate increases which have resulted in rapidly changing market conditions,” said Graham Sellar, business development and key account manager.
The cost-of-living crisis and soaring inflation mean people with standard variable rates are also refinancing their fixed-rate loans, said Metro Bank’s Davis, who said the lender plans to increase its portfolio. mortgage until 2023.
Mortgage offers in the UK are generally valid for six months and customers anticipate interest rate hikes by seeking loan approvals five to six months before the end of their transactions, compared to two to three months previously, it said. -he declares.
“Mortgages have been the only real loan growth game in town since 2019 (when prices hit lows). Rising UK rates and foaming house prices may dampen supply, but together with structural hedges they remain essential for margin and earnings,” says Jonathan Tyce, senior banking analyst at Bloomberg.
UK homeowners are more vulnerable to rising borrowing costs as they typically fix their problems for two to five years, compared to up to 30 years in the US. Bloomberg Economics expects the Bank of England to raise the key rate to 1.75% in August and 2.25% by the end of the year.
The average price of a two- and five-year fixed-rate mortgage rose about 0.5% this month to 3.74% and 3.89% respectively, according to Moneyfacts. This is the highest since the financial data provider began compiling statistics in mid-2007.
The UK housing market is showing signs of slowing after a sales tax exemption on stamp duty, low borrowing costs and a desire for more open space sent values ​​soaring over the past two years. Rising rents have also made it harder for first-time buyers to save a down payment for a home, dampening demand.
In an effort to drive up house prices, Prime Minister Boris Johnson has said in recent weeks that he is open to introducing mortgages of 50 years or more and others that would require almost no deposit. Johnson will step down in September after being ousted by the Conservative Party, meaning the future of politics depends on whether or not he gets the support of the new prime minister.
Fund managers are so far calm about the risks of a downturn.
Spreads on the safest tranche of prime residential mortgage-backed securities widened to 65 basis points above the SONIA benchmark rate, from 30 basis points at the start of the year. The enlargement reflects similar moves in the markets due to volatility since Russia’s invasion of Ukraine.
“Although UK mortgage-backed bond spreads have widened in secondary markets, they remain far from the Covid-19 peak,” said Pauline Quirin, portfolio manager at TwentyFour Asset Management in London.
“There has been no deterioration in mortgage performance so far, but the impact of the cost of living crisis will likely be felt towards the end of the year.”

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