UK mortgage deals drop 10% as lenders reassess amid interest rate fears

In the wake of rising concerns over interest rates, nearly 10% of UK mortgage deals have been withdrawn from the market since the previous week. Financial data company Moneyfacts reported that close to 800 residential and buy-to-let deals have been removed as lenders reassess their offerings. Furthermore, average rates on two-year and five-year fixed deals have experienced an increase.

This development comes after higher-than-anticipated inflation figures prompted an increase in predictions for UK interest rates. Last week’s official data revealed that the UK inflation rate, which measures rising prices, slowed less than expected in April to 8.7%. This led to a significant market reaction, with investors now expecting the Bank of England to raise interest rates from the current 4.5% to as high as 5.5% to curb price increases.

The shift in expectations has resulted in significant price and interest rate fluctuations in the bond markets, which in turn impact mortgages. Swap rates, which lenders use to price home loans, have risen.

Moneyfacts reports that since the beginning of last week, the number of residential mortgages on the UK market has dropped by 373, from 5,385 deals to 5,012. The number of buy-to-let mortgages has decreased by 405 to 2,343. Mortgage rates have also increased, with the average rate on a two-year fixed deal climbing to 5.38% and the average rate on a five-year fixed now at 5.05%.

These rates are significantly higher than those in May of last year, when two- and five-year fixed rates were 3.03% and 3.17% respectively. However, they are still below the levels observed last October, shortly after the mini-budget unsettled markets and increased borrowing costs.

“Borrowers searching for a new deal may well be concerned about the latest developments in the mortgage market,” said Rachel Springall, a finance expert at Moneyfacts. “Over the past few days, we have seen a few lenders withdraw selected fixed products, with some pulling out of the market, at least temporarily. Product choice has started to fall, and as may be expected, average fixed mortgage rates are on the rise.”

Property prices have been declining over the past six months as borrowing costs gradually increase, reducing people’s purchasing power. However, property website Zoopla reported on Tuesday that buyer confidence seemed to be improving, with sales agreed reaching their highest point of the year so far in April.

Nevertheless, Zoopla’s CEO, Charlie Bryant, told the BBC’s Today programme that last week’s inflation figures had created some uncertainty. “What we’ve seen over the course of the last few months is that if rates settle around the 4-4.5% level, that is affordable for most buyers. If you look at the rates that came in shortly after the mini-budget at the back end of last year, we saw those rates going up to 5-5.5%, which brought in those faster house price falls.”

He added: “We do need to see what happens following the inflation data at the beginning of last week, which saw swap rates increase, which may lead mortgage lenders to push rates up a little bit and that may have more of an impact again.”