The city watchdog is asking banks how they plan to step in and support struggling mortgage borrowers as lenders such as Virgin Money relaunch home loans at higher rates after a series of withdrawals triggered by the credit crisis. this week. market crash.
supervisors in the Financial Conduct Authority (FCA) have been having discussions with lenders to understand how their mortgage customers are doing and the kind of options on the table that would give struggling homeowners some breathing space.
Brokers estimate that about 1.9 million mortgage borrowers will exit fixed-rate deals next year, raising fears that homeowners may struggle to afford higher monthly payments on new loans.
Chris Sykes, a mortgage broker at Private Finance, said higher rates would mean some customers “will have to cut back” on their overhead.
“I have quoted some clients in products of only interest [that are worth] three times your original mortgage payment in the future,” he said. “I have quoted some clients thousands more than their current mortgage payment for a new product.”
First-time buyers with small deposits faced interest rates above 6%. “In some circumstances, it could be significantly more expensive than renting now,” Sykes said.
Virgin was one of the first to stop issuing new mortgages on Monday, after the government’s mini-budget sent sterling rates to record lows and UK bond prices plummeted, making it difficult for banks to price their home loans accurately. A series of rivals followed, resulting in 40% of mortgage products being withdrawn from the market on Thursday.
However, with calm returning to markets, Virgin relaunched mortgage products on Friday morning, albeit with interest rates starting at 5.2%-6.8%. That compares with rates of around 4% at the start of the week.
Other lenders have been cautiously re-entering the market, but again at higher rates. HSBC, for example, withdrew its products for just a few hours this week but raised interest rates to around 5%, brokers confirmed.
But even with higher interest rates, new and existing homeowners are expected to flood lenders with applications, fearful the Bank of England could raise rates even higher.
While the central bank’s base rate, which helps determine what commercial banks charge, is currently at 2.25%, some analysts believe it could hit 6% next year.
Some lenders have beefed up their mortgage teams in response to demand. Virgin is understood to be moving hundreds of employees from other parts of the bank into its home lending division to field calls from customers hoping to get a loan before rates rise further.
However, brokers warned that any further chaos in UK markets could force banks to stop lending again and raise rates.
“There’s always a risk in today’s market,” said Nicholas Mendes of mortgage broker John Charcol. “Brokers will seek to manage client expectations, but lenders may give little or no notice.”
