Market chaos forces UK lenders to withdraw mortgage products

An estate agent’s for sale and lease signs are attached to railings outside an apartment building in south London, Britain, September 23, 2021. REUTERS/Hannah McKay

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LONDON, Sept 26 (Reuters) – Turmoil in Britain’s financial markets forced mortgage lenders to temporarily pull back and reprice products for new customers on Monday, a real consequence of the market volatility caused by Finance Minister Kwasi Kwarteng’s mini-budget last week.

Brokers said the moves were likely to be just the start of a major shift in Britain’s mortgage market.

The country’s biggest mortgage lender, Halifax, said it was withdrawing its fee-based mortgage products – where borrowers can pay an arrangement fee in return for a lower interest rate – and moving to a full no-fee range.

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Virgin Money and Skipton Building Society temporarily pulled their entire range, with the former aiming to relaunch later this week, according to emails sent to Reuters brokers.

Kwarteng sent the pound and government bonds into freefall on Friday with a so-called mini-budget aimed at boosting the economy by funding tax cuts and a huge increase in government borrowing.

“As a result of significant changes in funding costs, we are making some changes to our product mix,” a Halifax spokesman said.

The yield on Britain’s five-year government bonds – a crucial benchmark for lenders’ mortgage funding – rose 96 basis points on Monday and Friday combined, the biggest rise in borrowing costs since Refinitiv’s 1987 inception.

“Following last week’s (BoE) meeting and the government’s subsequent mini-budget, we continue to see market reaction developing,” Skipton Building Society said in an email to brokers.

“In response, we are temporarily removing our New Business product line immediately.”

Virgin Money said withdrawals for its mortgage products to new customers would take place at 20:00 (1900 GMT).

“We are monitoring the situation closely and are currently looking to launch products to new customers towards the end of the week,” Virgin Money said.

Halifax, part of Lloyds Banking Group (LLOY.L)said its product prices did not change and it continued to offer no-fee options across all product terms and loan value levels.

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

“Uncertainty around the risk of an emergency rate hike is likely to lead to other lenders withdrawing their products or raising rates dramatically until they know how this will all play out,” said Jamie Lennox, director of broker Dimora Mortgages.

Others said mortgage rates were likely to rise sharply after the Bank of England said on Thursday it would not hesitate to move rates “as much as necessary” to return inflation to target levels.

“It’s driving up mortgage rates, and as always, it’s the taxpayer who’s carrying the can,” said Lewis Shaw, founder of brokerage Shaw Financial Services.

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Reported by Andy Bruce Editing by William James and Mark Potter

Our standard: Thomson Reuters Trust Principles.

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