Mortgage nightmare continues as sub-5% deals disappear from market

Homeowners are set to face higher borrowing costs after lenders pulled the vast majority of sub-5 per cent mortgage deals remaining on the market.

While the Bank of England has held interest rates since last Christmas, the bond markets and fears of rising inflation have pushed swap rates – which mortgage deals tend to be priced from – significantly higher across the summer.

That has seen a series of banks and building societies pull their best deals from the shelves, with over 1,000 sub-5 per cent mortgage deals removed from the market last month.

The average five-year deal is now at 5.95 per cent on 1 October, which according to Moneyfacts is the highest level for three years.

Despite rate increases over the past few weeks, most experts predict more are coming and urge anyone needing a new mortgage deal to lock in a fix as soon as possible.

Usually you can do this with six months remaining on your current deal, and if a better one crops up before the current one expires you could still switch – but if deals only get more expensive, you’ll have missed out if you don’t act early.

Rupert Collingwood, founder of The London Broker, said the cost of moving and borrowing is only going up, and the housing market could be a longer-term problem for the government’s economic aims.

“This picture becomes even more stark when we take into account inflation which appears to only be going in one direction at what appears to be a faster rate,” he said. “Consumers are under significant financial pressure and the cost of moving, cost of borrowing and cost of running a larger home is probably something being considered only by an ever smaller number of people.

“The housing market is considered by many to be a good indicator of a wider economic outlook. Certainly the housing market slowdown is impacting related trades and service suppliers. Growth in every postcode will be hard to deliver if the housing market continues to dwindle.”

One knock-on effect of higher rates could be that more people decide to hold off purchasing, meaning renewed and prolonged pressure on rent prices instead, says Moneyfacts’ expert Rachel Springall.

“Higher mortgage rates will stretch the household budgets of prospective buyers, but the direction of interest rates is not the only factor influencing the housing market. The rise in the cost of living and buyer confidence weigh on demand, so it’s important to stress that there is much more at play overshadowing the housing market than just the rise and fall in borrowing costs,” she said.

“There may well be some prospective buyers deciding it is a safer bet to continue in the private rental market for now, so tenant demand will likely continue to outstrip supply, putting prolonged upward pressure on rents.”

The higher mortgages scenario is feeding into a wider difficult picture in the property market, with prices in the UK falling month on month across September.

“Prices are now growing at their slowest pace since December last year, and are significantly lagging inflation. It means property is losing value once inflation is taken into account,” said Sarah Coles, head of personal finance at AJ Bell.

“It’s easy to see why. Mortgage rates have been climbing since early August, forcing buyers to rethink their plans.

“House prices are still rising more slowly than wages, so they’re getting more affordable on paper. It’s just that, in reality, more expensive mortgage rates are pricing people out.

“The fact that property is now losing value after inflation could have a further dampening effect on buyer confidence, especially in parts of the country where property prices are actually falling. Over the past three months, we’ve seen price drops across the South West, East Anglia, East Midlands and outer London.”