Lenders Withdraw Hundreds of Mortgage Deals as Economists Warn of Impending House Price Drops

Lenders have made a significant move in the mortgage market, pulling nearly 800 mortgage deals economists issue warnings about potential house price declines.

Lenders pull hundreds of mortgage deals as economists warn of fresh house price falls. (Photo: Forbes)

Lenders Withdraw Hundreds of Mortgage Deals

Moneyfacts analysts report that 14 lenders have withdrawn close to 400 fixed-rate residential mortgage deals, with three lenders pulling their entire fixed range, The Telegraph reported.

Simultaneously, the average interest rate for residential fixed-rate mortgages has experienced a slight increase from 5.34% to 5.38%.

In the buy-to-let sector, approximately 14% of mortgage deals have vanished within a week, with an additional 400 loans being withdrawn. Average interest rates for a two-year fixed-rate mortgage in this sector have risen from 5.58% to 5.61%.

These developments come after official data revealed an unexpected surge in inflation, which rose by 8.7% compared to the Bank of England‘s projected 8.4% increase.

According to Rachel Springall from Moneyfacts, average rates are anticipated to continue climbing due to ongoing concerns surrounding potential interest rate hikes.

Landlords are particularly vulnerable to rising mortgage deal costs, as these expenses eat into their yields. Capital Economics analysts predict that if interest rates reach 5%, approximately 735,000 rental properties will be lost as landlords are forced to sell.

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Mortgage Deal Rates

The economist group has revised its forecast for mortgage deal rates, projecting a rate of 6% next year, which would match the levels seen after the fallout from Liz Truss’s mini-budget.

They expect interest rates to remain high until at least August next year. Consequently, average mortgage rates may peak at 5.7% in early 2024, making an 8% decline in house prices more likely.

Furthermore, economists express concerns that rising rates will undermine the recent increase in mortgage approvals and could lead to renewed drops in home prices.

Economists, including Willem Buiter, Andrew Sentance, and DeAnne Julius, former members of the Central Bank’s Monetary Policy Committee, have suggested that interest rates may need to rise as high as 6% to address rampant inflation. The last time rates were this high was in the fall of last year following Liz Truss’s Budget, and prior to that, it was before the financial crisis.

While the Bank of England and the International Monetary Fund previously dismissed predictions of a severe economic downturn, economists now predict that Britain could enter a recession in the second half of the year if market expectations persist throughout the summer.

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