More than 900 deals were withdrawn in one day as lenders looked to reprice their loans. But the move is set to be temporary as lenders reassess their rates.

Mortgage lenders have withdrawn deals at a record rate in response to the current market volatility.

More than 900 products – representing one third of the mortgage market – were pulled overnight between 27 and 28 September, the highest level since financial information group Moneyfacts started keeping records.

More than a dozen lenders either withdrew or repriced their mortgages, including big names such as Halifax, Santander and Nationwide Building Society.

Their actions left 2,661 different products available, less than half the 5,315 deals that were on offer in December last year, before the Bank of England started to increase interest rates.

But homeowners were reassured that the situation is likely to be temporary, while lenders reassess the interest rates they charge in response to the current market volatility.

Rachel Springall, finance expert at Moneyfacts, said: “Borrowers would be wise to keep calm over the current volatility in the mortgage market and seek the advice from an independent broker.

“Various lenders have been very vocal that their decision to withdraw products is a temporary measure, amid the uncertainty over interest rates.”

Why is this happening?

Chancellor Kwasi Kwarteng mini-Budget triggered a steep fall in the value of the pound, with investors worried his plans to cut taxes would boost inflation.

The Bank of England has already increased interest rates from 0.1% to 2.25% in a bid to bring inflation down from its current 40-year high.

But economists have warned that it may now have to hike the cost of borrowing even higher than previously thought, with some predicting they could peak at 5% next year, while money markets have priced in a rise to 6% by May 2023.

Speculation that interest rates will have to rise faster and further than previously thought has led to lenders’ own borrowing costs increasing from 3.6% in early September to 5% now.

This rise means lenders can no longer afford to offer mortgages at their previous rates, so they have withdrawn their products while they reprice them.

What does it mean for homeowners?

The good news for homeowners is that lenders are expected to relaunch their ranges once they have repriced them.

It is worth noting that, unlike at the start of the Covid-19 pandemic when lenders withdrew products for people with small deposits, mortgages have been pulled across nearly all areas of the market, with people looking to borrow 75% of their home’s value seeing the biggest fall in choice.

This suggests that the lenders do simply want to reassess the rates they charge and not that they have lost their appetite to lend to certain types of borrower.

The bad news is that when they do relaunch their ranges, interest rates will definitely be higher.

The average cost of a two-year fixed rate mortgage has already increased from 4.24% at the beginning of September to 4.81% now, while interest rate charged on a typical five-year fixed rate deal has risen from 4.33% to 4.76% during the same period.

Economists are predicting the Bank of England will make a significant increase to interest rates when it next meets in early November, possibly raising the Bank Rate by as much as 1% in one go.

As a result, mortgage rates are likely to get significantly more expensive in the months ahead.

What should I do?

If you are on your lender’s standard variable rate – the rate you revert to when your mortgage deal comes to an end – you should remortgage as soon as possible.

Although mortgage rates have risen, at 4.81%, the average two-year fixed rate loan is still cheaper than the average standard variable rate at 5.4%. As a result, switching would save someone with a £200,000 mortgage around £70 a month.

If you have six months or less left on your current mortgage deal, you should also move quickly to secure your next one.

Lenders will let people ‘book’ a new rate between three to six months before their current one ends.

The situation is harder to call if you have more than six months left on a fixed rate or tracker product, as you may incur penalties if you exit the mortgage early.

Even so, in some cases, it may be worth doing this to enable you to secure a new deal before mortgage rates rise further.

As each case will be different, you may want to consider consulting a mortgage broker to help you decide what the best course of action is for you.

It is worth noting that five-year fixed rate deals are now cheaper than two-year ones – reversing the normal situation in which homeowners have to pay a premium for the security of having their rate fixed for a longer period of time.

This suggests that while markets anticipate steep rises in interest rates in the short-term, they expect rates to be back on their way down again after a couple of years.

Key takeaways

  • More than 900 products, representing one third of the mortgage market, were pulled overnight between 27 and 28 September
  • The situation is likely to be temporary while lenders reassess the rates they charge following predictions interest rates could hit 6%
  • The average cost of a two-year fixed rate mortgage has risen from 4.24% at the beginning of September to 4.81% now