Chart of the Week: UK mortgage withdrawals in response to the UK ‘mini-budget’

UK mortgage lenders began withdrawing their products from the market last week, as the effects of Chancellor Kwasi Kwarteng’s ‘mini-budget’ on Friday 23 September were felt across the economy. 935 mortgage products were pulled last Tuesday, according to Moneyfacts, surpassing the previous daily record of 462 which occurred at the onset of the COVID-19 pandemic. The £45 billion worth of debt-funded tax cuts announced by Mr Kwarteng had unsettled the financial markets, and caused the cost of lending to UK institutions to rise. Banks and building societies price their mortgages in advance, so banks were at risk of putting out products which would be unprofitable. Swap rates are used by lenders to hedge against interest rate risk in fixed-rate mortgages. A two-year fixed mortgage rate is essentially the two-year swap rate plus a spread of about 100 basis points (during ‘normal’ times). The two-year swap rate surpassed 6% on Tuesday, a high last seen during the height of the financial crisis in 2008, while the five-year swap rate reached 5.6%. It is hoped that the Bank of England’s emergency bond-buying programme, announced on Wednesday, will steady borrowing costs and allow lenders to quickly re-price mortgages and return to the market. With over 2 million UK households on fixed-term mortgages expected to re-mortgage before the end of 2024, however, and forecasters now expecting the Bank of England’s base rate to rise to 6% by next year, higher rates are likely to stay.

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