Mortgage borrowers are facing a new wave of rate hikes

Mortgage lenders raised home loan interest rates to new highs in the wake of the financial market turmoil, deepening the affordability crisis faced by borrowers and contributing to a bleak housing market outlook.

Two-year fixed-rate mortgage rates hit 6.46 percent on Wednesday, with five-year rates hit 6.32 percent, the highest since the financial crisis, according to data provider Moneyfacts.

Barclays hiked rates on fixed rate home loans by 0.8 percentage point on Wednesday; its 10-year fixed-rate contract, for example, went from 4.85 to 5.65 percent for borrowers with a large deposit of 40 percent or more. This was followed Monday by Halifax’s increases of up to 1.29 percentage points.

Rate hikes among lenders have accelerated since Chancellor Kwasi Kwarteng’s ‘mini’ budget in late September sent gilt yields higher. The Bank of England has attempted to bring stability to markets with a gilt-buying initiative, but this week bond markets and sterling suffered renewed swings in volatility.

Gilt yields affect the swap markets that lenders use to price their fixed income loans. Ray Boulger of mortgage broker John Charcol said banks were reacting to bond market movements.

“Lenders must factor in the cost of funds and make a difficult decision about when to buy funds in the money market,” he said. “If they buy fixed-rate money at the wrong time, they have to offer lower-margin mortgages to get rid of it. Ultimately, the uncertainty makes many of them cautious.”

TSB hiked its fixed-rate mortgage rates by as much as 0.55 percentage points on Wednesday, and Metro Bank told brokers it is withdrawing all loans with a loan-to-value ratio above 80 percent for private borrowers. and those over 75 percent LTV for buy-to-let.

Hinckley & Rugby Building Society paused all new mortgage applications, citing “a sustained period of very high demand which is now putting pressure on our service”.

Skyrocketing mortgage rates have left some homeowners facing large increases in expenses, while at the same time the prices of fuel, groceries and other household items have soared.

Aaron Strutt of broker Trinity Financial said: “Faced with huge and often unaffordable increases in their monthly payments, many borrowers are concerned. Many homeowners will not be able to refinance their debt to another lender, so they will have to stick with their existing providers.”

The mortgage crunch is weighing on the broader housing market, according to the Royal Institution of Chartered Surveyors’ (Rics) latest survey of the UK housing market, which showed new buyer inquiries fell for the fifth straight month in September, along with fewer homes available from estate agents are offered for sale.

It said any market push triggered by a stamp duty cut announced by Kwarteng in his “mini” budget would be offset by the expected hike in mortgage rates over the coming six months. So far, house prices have been “bumped up” by falling inventories, but negative sentiment among realtors has intensified in recent weeks.

Simon Rubinsohn, Rics chief economist, said much will depend on the state of the mortgage market as the current phase of turmoil eases, “but it’s difficult not to envision further pressure on the property sector as the economy adjusts to higher interest rates and tightness adjusts Labor market begins to reverse.

“Right now, mortgage arrears and possessions remain at historic lows, but they will inevitably move up over the next year as pressure on homeowners mounts,” he said.