Two of the UK’s foremost mortgage lenders have ceased to offer mortgages for new customers in what comes as a stark reflection of the economic climate faced by banks and consumers alike.
Virgin Money and Skipton Building Society will offer no new mortgages, though already submitted applications will still be processed. Halifax will also stop mortgages with product fees.
Chancellor Kwasi Kwarteng’s mini-budget, and subsequent comments regarding further tax cuts to come, wavered confidence amongst investors as the government is set to escalate its borrowing.
On the subject of borrowing, the Bank of England said on Monday that it “would not hesitate” to further increase interest rates – which now sit at 2.25% following seven consecutive rate rises – in an effort to pull the parachute on the pound’s nosedive having hit a record low of $1.03 on Monday.
All of this has culminated in lenders beginning to tighten their belts, with Moneyfacts reporting that the total number of residential mortgages offers available fell by 365 over the weekend to 3,596.
Julie-Ann Haines, chief executive at Principality Building Society, said:
“As a lender, [we need to] make sure that customer mortgages are affordable. We have to do that under regulation and we therefore need to stress-test and make sure that if the Bank of England base rates go up that consumers can still afford their mortgage.”
Speaking of stress tests, the Bank of England (BoE) is seemingly preparing for the worst as it published its annual cyclical scenario stress test criteria this week in an effort to gauge lenders’ resilience and ability to “absorb rather than amplify” financial shocks.
Amongst the hypothetical tests that major UK banks will be subject to are the following:
- Residential property prices fall by 31%
- Bank Rate is assumed to rise rapidly to a peak of 6% in early 2023 before reducing gradually to under 3.5%
- Inflation peaks at 17% in 2023 and remains persistently high – averaging around 11%
- UK unemployment more than doubles to a peak rate of 8.5%
- UK GDP falls by 5%
While this is seen as a worst-case scenario crisis, it is one that is deemed plausible by Threadneedle Street.
As such, any of the largest banks that fail the stress test will be forced to find billions of pounds so as to reinforce their finances.
It has also been revealed that lenders have withdrawn a record number of mortgage products in the last day, according to analysts. It has been reported that 935 mortgage products, which equates to around a quarter of the total amount, have been withdrawn overnight.
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