Market chaos forces UK lenders to pull mortgage products

Estate agents for sale and rent signs are posted on railings outside a residential building in south London, Britain, September 23, 2021. REUTERS/Hannah McKay

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

Brokers said the moves are likely just the beginning of a big shift in the UK mortgage market.

The country’s largest mortgage lender, Halifax, said it was phasing out its fee-based mortgage products – where borrowers could pay a processing fee in return for a lower interest rate – and switching to a full fee-free offering.

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Virgin Money and Skipton Building Society have temporarily withdrawn their entire ranges, with the former targeting a relaunch later in the week, according to emails sent to brokers seen by Reuters.

Kwarteng on Friday sent sterling and government bonds into free fall with a so-called mini-budget designed to stimulate the economy by funding tax cuts with a huge hike in government bonds.

“Due to significant changes in financing costs, we are making some changes to our product range,” said a Halifax spokesman.

The five-year UK government bond yield – a key measure of lenders’ mortgage funding – rose a combined 96 basis points on Monday and Friday, the largest such rise in borrowing costs since Refinitiv began keeping records in 1987.

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

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“In response, we will be temporarily withdrawing our New Business product range effective immediately.”

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

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

Halifax, part of Lloyds Banking Group (LLOY.L), announced that its product rates have not changed and that it continues to offer no-fee options for all product terms and loan-to-value levels.

Brokers said other lenders are sure to make big changes to their mortgage offerings.

“Uncertainty about the risk of an emergency rate hike is likely to cause other lenders to pull back products or raise rates dramatically until they know the extent to which this is having an impact,” said Jamie Lennox, director of a broker at Dimora Mortgages.

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Others said mortgage rates were likely to rise, and the Bank of England said on Thursday it would not hesitate to change interest rates “as far as necessary” to bring inflation back to target levels.

“That’s going to result in higher mortgage rates, and as always, it’s going to be the taxpayer who carries the can,” said Lewis Shaw, founder of brokerage firm Shaw Financial Services.

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Reporting by Andy Bruce Edited by William James and Mark Potter

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