The UK mortgage market is experiencing its most significant turbulence since the September 2022 mini-Budget, according to data from Moneyfacts, as geopolitical tensions and economic uncertainty drive rates upward.
The data comparison firm has identified trends in mortgage offers that mirror the volatility seen following the 2022 mini-Budget delivered by then-Chancellor Kwasi Kwarteng, which caused significant disruption to lending markets.
Rate increases and product withdrawals
The average rate on two-year fixed mortgages has risen above 5% as lenders respond to economic pressures. Up to 500 mortgage products have been withdrawn from the market, the highest number of withdrawals since 2022.
Adam French, Head of Consumer Finance at Moneyfacts, told the BBC: “Recent days have been some of the most turbulent in the UK mortgage market since the aftermath of the September 2022 Mini-Budget.”
“It’s unwelcome news for borrowers, as the prospect of falling mortgage rates has quickly given way to rate rises,” he said. “How far they could go is now heavily dependent on how global markets and inflation expectations evolve as conflict in the Middle East unfolds.”
Conflict in the Middle East is threatening to drive up inflation, potentially putting pressure on the Bank of England to raise interest rates when policymakers meet next week.
Industry disruption adds uncertainty
The collapse of mortgage lending firm Mortgage Financial Solutions (MFS) last month has been cited by analysts as an additional factor contributing to market uncertainty.
First-time buyer confusion
Separate research from the HomeOwners Alliance has found that widespread misconceptions about mortgage criteria are deterring potential first-time buyers from entering the market.
The organisation’s research identified several common misunderstandings: 65% of respondents believe having bad credit automatically disqualifies them from obtaining a mortgage, while 62% think a minimum 10% deposit is required to purchase a home.
Additionally, 49% believe borrowing is limited to four to five times their income, 47% assume the lowest interest rate equates to the cheapest overall mortgage, and 40% think they should obtain a mortgage from their current bank. A further 25% believe they cannot explore mortgage options until they have found a property.
Paula Higgins, CEO at the HomeOwners Alliance, said: “Too many first time buyers are putting themselves out of the running before they have even had a proper conversation with mortgage experts about what might be possible. Misunderstandings about deposits, borrowing limits and how mortgages work are denting confidence at the very first hurdle.”
Market outlook
The combination of rising rates, product withdrawals, and buyer confusion presents challenges for the UK property market. The extent of further rate increases will depend on global market conditions and the Bank of England’s response to inflationary pressures in the coming weeks.
