Mortgage chaos: why hundreds of products have been pulled

Bad inflation figures have sparked chaos in the mortgage market, and it’s borrowers who are paying the price.

It’s been a painful week if you’ve been looking for a mortgage.

Over the last 10 days or so, there has been an awful lot of upheaval within the mortgage market.

Dozens of lenders, large and small have pulled their range of fixed-rate mortgages, and relaunched products at higher interest rates.

Some lenders went further and pulled their entire mortgage range, opting to pause and take stock before re-entering the mortgage market.

In total around 800 mortgage deals were dropped, according to Moneyfacts, and while some deals have been relaunched the reality is that there are now almost 400 fewer mortgage products on the market than was the case 10 days ago.

Why lenders have reacted

So what has driven this frenzied activity? Essentially it all comes down to inflation.

The headline inflation figure dropped in April according to data from the Office for National Statistics (ONS), with the consumer prices index (CPI) measurement moving from 10.1% in the year to March to 8.7% in the 12 months to April.

This wasn’t the good news it initially appeared, however, with core CPI ‒ which excludes things like energy and food ‒ actually increasing.

It wasn’t just any old increase either, but at 6.8% it’s now at its highest level since 1992. In other words, there are deep inflationary worries.

Given the Bank of England’s remit is to keep inflation down at around its 2% target, the latest figures suggest that further increases to the Bank Base Rate are on the cards.

That expectation has meant that swap rates ‒ essentially the cost of borrowing for lenders, which they use to fund their mortgages ‒ has gone up, necessitating the rapid repricing seen over the last week or so.

A sense of deja vu

If this all feels a bit familiar to you, then that’s understandable. It’s much the same phenomenon that we saw last autumn, following the disaster of the mini-Budget. 

In essence, the money markets believed that Base Rate would have to go up, and that has made it costlier for lenders to get the funding they need for their usual activities.

It’s just that this time, it’s data from the ONS which has sparked this upheaval, rather than the actions of the then-Chancellor Kwasi Kwarteng.

And as we saw last year, this chaos has meant a worrying time for borrowers in the process of getting a mortgage sorted, and a race against time to get deals over the line. 

After all, in many cases lenders gave minimal notice that their deals were about to be pulled, meaning that the hugely stressful experience of taking out a mortgage ‒ and likely buying a house ‒ has become even more painful.

What happens next?

In the short term, it would appear that the worst is over. The fact that pretty much every mortgage lender in the land has hiked their interest rates means that there isn’t much need for them to do it again.

Unless, of course, there is further negative economic news on the horizon.

Should more official data come out which signals even bigger Base Rate hikes are on the cards, then it’s possible ‒ in fact, it’s outright likely ‒ that we would see a repeat.

As a result, if you are likely to be looking into a move or remortgage at some point this year, it’s a really good idea to start that hunt today.

Mortgage offers tend to last for three months, but in some cases run for six months, giving you plenty of time to change course if necessary.

It’s also worth considering the changes you can make now which will mean any future mortgage is a little more affordable.

The fact is that the rates on offer today are substantially higher than you would have been able to get a year or so ago, and that will have a real knock on impact on the size of your repayments. 

That means going through your budgets carefully, and trying to pinpoint areas where some money can be saved.

If your mortgage repayments are about to jump by £200+ plus a month, then that money needs to come from somewhere.